Sheila -
Short squeezes are actually more likely to occur in situations where a large short position exists on a stock with a small daily trading volume. This is because low volume makes it more difficult to find available shares to close a short position.
In that situation, when some piece of very postive news makes the stock suddenly a "buy," there are fewer sellers but plenty of buyers. As the price rises, short sellers may become desperate to get out of what has become a losing position, and will therefore pay whatever it takes to close the short, thus increasing buy volume. But then there are even fewer people willing to sell, at least at the prices the shorts would like to pay. And so on.
Right now, with the current short positions in IOM totalling more than 27 million shares, it would take more than two trading weeks worth of volume to cover them all. The price would certainly not stay in these ranges with that kind of buying pressure in place.
Anyone who believes that low average volume is good for shorts is just wrong.
All of the above is just my understanding of the dynamics of a short squeeze, as presented to me by one who has much greater experience as a trader. He works for one of the top investment banks in New York. I, of course, am a mere computer nerd, and wouldn't know about such things. ;-)
However, with all that has gone wrong with Iomega for the past year, I think it would take some seriously amazing good news to cause a short squeeze.
- Allen |
