A number of stocks, led by DryShips Inc.
While DryShips may be one of the most extreme examples, there are plenty of other post-election movers as well. Euroseas Ltd.
There’s no question that Trump’s election has improved the fundamentals for shipping stocks, prison stocks and certain energy and healthcare stocks. The Baltic Dry Shipping Index is up eight days in a row and is currently at its highest level since 2014. However, moves like the 1,500 percent-plus jump by DryShips aren’t anywhere close to justified by fundamentals alone.
The typical short squeeze happens when a stock’s fundamentals unexpectedly improve. As a result, the surge in buying following the news is compounded by short sellers buying to close out their short positions. However, in extreme cases, such as the DryShips scenario, broker inventories can also come into play.
When brokers can't get their hands on enough shares of a stock to close out traders’ short positions, things can get
According to the
“Customers holding short stock positions are at risk of having these positions bought-in and closed out by [prime brokers], oftentimes with little or no advanced notice. This is a risk which is inherent to short selling and generally outside the control of the customer,” the website reads.
Therefore, in the case of stocks such as
Of course, these issues tend to settle down in time after the initial buying frenzy dies down, and short squeeze stocks eventually come back down to earth. However, it’s difficult to predict when that regression will happen and whether or not there will be enough shares available for short sellers to take advantage of the opportunity.
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.