World Blog by humble servant. Bears' 20-Year Short-Selling Saga: Crushed, Again and Again
Quick Summary of How They “Propel” the Market
- Bull markets are the primary long-term drivers of wealth creation in equities. The compound effect of multi-year bull runs (especially 1982–2000 and 2009–2020) is responsible for the vast majority of stock market gains over the past century.
- Bear markets, while painful, act as resets: they purge excess speculation, force corporate efficiency, and set the stage for the next bull market (e.g., the 2009 low launched the longest bull run in history).
- Statistically: since 1928, the S&P 500 has spent ~75–80% of time in bull markets and only ~20–25% in bear markets, which is why long-term investors are overwhelmingly rewarded despite periodic crashes.
These cycles are the heartbeat of the stock market—sharp bear declines followed by prolonged bull recoveries are the historical norm
What Is a Short Squeeze? Full Breakdown
A short squeeze is a rapid, violent upward move in a stock (or any asset) caused by short sellers being forced to buy back the shares they borrowed and sold, which in turn pushes the price even higher, trapping more shorts, and creating a self-reinforcing feedback loop.
It is one of the most dramatic and profitable (or destructive) events in markets.
Step-by-Step: How a Short Squeeze Actually Happens
- Short sellers borrow shares and sell them
- They believe the price will fall.
- Example: Stock at $100 → short seller borrows 1 million shares and immediately sells them for $100m cash.
- They now owe the lender 1 million shares (not dollars).
- Short interest builds up
Short interest = % of the float (freely tradable shares) that is currently sold short.
Key thresholds that make squeezes possible:
20% = elevated
30–40% = dangerous
50–80%+ = nuclear (VW 2008, GME 2021, TSLA 2020)
- Something changes the narrative (the catalyst)
Common triggers:
- Unexpectedly good earnings or news
- Major insider/institutional buying
- Activist campaign or takeover announcement
- Retail crowd piles in (Reddit, X, StockTwits, etc.)
- Index inclusion forcing passive buying
- Price starts rising → margin calls begin
Brokers require shorts to keep a minimum equity % in their account (usually 30–50%).
As price rises → account equity falls → broker issues margin call → short must either:
- Deposit more cash, or
- Buy back shares to close the position
- Forced buying accelerates the rise Every share a short buys back is a real buy order hitting the market. This buying itself pushes the price higher → triggers more margin calls → more buying → gamma squeeze in options (see below) → price goes parabolic.
- Peak panic
- Borrow fee (cost to borrow shares) can go from 1% → 100%–900% annualized
- Shares become impossible to borrow (“zero shares available”)
- Shorts capitulate en masse
- Price can double in hours or 10x in days
- Squeeze ends Once most shorts are covered, the forced buying stops and price usually crashes 50–90% in the following days/weeks.
Two Types of Short Squeezes
| Type | Driver | Classic Examples | Max Pain Duration |
|---|---|---|---|
| Traditional | Fundamentals + low float | Porsche-VW (2008), Tesla 2019–2020 | Days to weeks |
| Gamma + Retail | Call option delta hedging | GameStop Jan 2021, AMC 2021, BBBY Aug 2022 | Hours to days |
The 2021 version added a new weapon: gamma squeeze
- Retail buys massive amounts of cheap out-of-the-money call options
- Market makers who sold those calls are short gamma → must buy more and more stock as price rises to stay delta-neutral
- This delta-hedging buying happens automatically and accelerates the squeeze
Hall-of-Fame Short Squezes (Real Numbers)
| Stock | Year | Short Interest (peak) | Price Move | Short $ Losses (est.) | Notes |
|---|---|---|---|---|---|
| Volkswagen | Oct 2008 | ~12% of total shares (but >70% of free float after Porsche reveal) | €210 → €1,005 in 2 days (+378%) | >€30 billion | Briefly world’s most valuable company |
| Tesla | 2019–2020 | 20–30% for years | $65 → $900 pre-split (2020) | ~$40 billion | Elon: “Short burn of the century” |
| GameStop | Jan 2021 | 140%+ of float | $17 → $483 intraday (+2,800%) | ~$20 billion in weeks | Reddit’s r/WallStreetBets vs. Melvin Capital |
| AMC | May–Jun 2021 | >100% of float | $9 → $72 (+700%) | ~$6–8 billion | “Apes together strong” |
| Volkswagen (again) | 2024–2025 mini-squeeze | >40% short | €90 → €190 in 3 weeks (Nov–Dec 2025) | ~€8–10 billion | Rivian stake rumors + low float |
Why Some Stocks Are Squeeze-Prone (The Perfect Recipe)
- High short interest (>30–50%)
- Low float / high institutional ownership (few shares available to borrow)
- High cost-to-borrow or “zero shares available”
- Cult-like retail following or meme potential
- Heavy call option open interest (gamma fuel)
- Catalyst that changes sentiment overnight
How Professionals Spot an Incoming Squeeze (Data Points)
| Metric | Warning Level | Where to Look |
|---|---|---|
| Short interest % of float | >30% dangerous, >50% insane | FINRA, Ortex, S3 Partners |
| Days to cover (short ratio) | >8–10 days | Average daily volume vs short interest |
| Cost to borrow | >50% annualized | Interactive Brokers, Ortex |
| Utilization | 90–100% | Shares on loan / lendable inventory |
| Put/Call ratio flipping | Sudden spike in calls | CBOE, unusual whales |
| Borrow fee spiking | 10→100% in days | Real-time alerts |
The Psychology & Aftermath
During the squeeze:
- Shorts go from smug (“this is obviously overvalued”) → panic → despair → rage.
- Bulls go full euphoria (“to the moon,” diamond hands, etc.).
After the squeeze:
- 80–95% of the squeeze gains are usually given back within weeks.
- Many late buyers (who FOMO’d at the top) become the new bagholders.
- Regulators investigate, brokers raise margin requirements, and the cycle repeats.
Bottom Line
A short squeeze is the market’s version of a predator trap snapping shut. Short sellers have theoretically unlimited risk (stock can rise forever) and only limited profit (stock can only go to zero). When too many pile in, any spark can ignite a firestorm that burns billions in days.
As Keith Gill (“Roaring Kitty”) famously said in 2021: “Shorts have to cover eventually. There is no ‘eventually’ for the longs — we can hold forever.”
That asymmetry is exactly why the biggest short squeezes in history keep getting bigger
The Crucial — and Often Overlooked — Role of Hedgers in Short Squeezes
“Hedgers” in this context are almost always market makers and options dealers (Citadel Securities, Susquehanna, Jane Street, Virtu, banks like JPMorgan, Goldman, etc.). They are not speculating — they are providing liquidity by selling options to the public (retail, institutions, hedge funds). Their hedging activity is the hidden turbocharger that turns a normal short squeeze into a historic moonshot.
Here’s exactly how hedgers create, amplify, and eventually end squeezes.
| Phase of Squeeze | What Hedgers (Dealers) Are Doing | Effect on Price |
|---|---|---|
| Pre-squeeze (quiet phase) | Selling cheap out-of-the-money calls to retail/institutions because implied vol is low. | They are short gamma & short delta → they hedge by shorting stock or futures. |
| Early squeeze (price starts rising) | Delta on their short calls keeps increasing → to stay delta-neutral they must buy stock aggressively. | Turns a 5–10% move into 20–50% very quickly. This is the gamma squeeze ignition. |
| Parabolic phase | Gamma goes exponential near the strike prices with the most open interest. Dealers buy in huge size, often 5–20× normal volume. | Price goes vertical (GME +100% in a single day multiple times in Jan 2021). |
| Top / exhaustion | Most explosive strikes are now deep in-the-money → gamma flips to near zero. Dealers stop buying and may even start unwinding hedges. | Buying pressure suddenly vanishes → price free-falls (GME from $483 → $40 in days). |
| Post-squeeze | Dealers are now massively long stock from hedging → they slowly sell it back into the market. | Creates the long, grinding “return to Earth” instead of instant total collapse. |
Key Mechanics & Numbers That Matter
- Gamma Exposure (GEX)
- Measures how much stock dealers must buy/sell for every 1% move in the underlying.
- Positive GEX → dealers amplify upside (gamma squeeze fuel).
- Negative GEX → dealers amplify downside (2022 bear legs).
- In Jan 2021 GameStop, dealer GEX went from –$2B to +$30B+ in a few weeks → they had to buy billions of dollars of stock.
- Charm / Delta Bleed After hours or over weekends, delta decays. Dealers often rebalance Monday open → classic “Monday gamma ramps.”
- Pin Risk & Max Pain On monthly/weekly OPEX (options expiration), dealers try to let the largest open interest expire worthless → they aggressively defend certain strike prices, creating violent pinning or breakouts.
- Dealer Positioning Cycles (2021–2025 real examples)
| Event | Dealer Net Gamma Position Before | Peak Forced Buying (est.) | Resulting Price Move |
|---|---|---|---|
| GameStop Jan 2021 | Heavily short gamma | $20–30 billion in stock | $17 → $483 intraday |
| AMC May–June 2021 | Short gamma | $8–12 billion | $9 → $72 |
| Tesla 2020 squeeze | Moderately short gamma | $15–20 billion over months | $65 → $900 pre-split |
| Volkswagen Oct 2008 | No options market (pure stock squeeze) | N/A | No gamma help → “only” +378% in 2 days |
| Rivian/VW mini-squeeze Nov–Dec 2025 | Positive gamma flip in late Nov | ~€4–6 billion | +100–150% in 3 weeks |
Why 2021-Style Squeezes Were So Extreme
- Retail bought calls in sizes never seen before (Robinhood, TDA, etc.).
- Dealers were structurally short gamma because they had been selling calls for months/years with almost no hedging cost.
- Zero rates + TINA (“there is no alternative”) kept volatility crushed → dealers were comfortable being short gamma.
- When the move started, the re-hedging feedback loop was unstoppable.
How Hedgers Differ From “Regular” Short Sellers
| Party | Motivation | Risk | Can They Be Forced to Cover? | Role in Squeeze |
|---|---|---|---|---|
| Speculative shorts | Directional bearish bet | Unlimited | Yes — margin calls | Provide the initial “dry tinder” |
| Options market makers/hedgers | Make markets, earn bid-ask | Theoretically hedged | Indirectly — via delta/gamma | Pour gasoline on the fire |
The speculative shorts light the match. The hedgers/dealers are the oxygen tank that explodes.
Bottom Line
In every legendary short squeeze of the last decade, the real accelerate
was not just high short interest — it was dealers being massively short gamma and forced to chase the stock higher at any price.
Without hedgers flipping from short-delta to massively long-delta in a few days, you get a nice 50–100% move (normal squeeze). With hedgers in full gamma-chase mode, you get 500–5,000% parabolic moves that rewrite record books.
That is why the most dangerous meme stocks today are the ones with:
- Sky-high short interest AND
- A giant wall of cheap call options just above the current price (the “gamma bomb”).
When both are present, hedgers become the unwilling rocket fuel
The Role of Dark Pools in Short Squeezes: The Hidden Battlefield
Dark pools are private, off-exchange trading venues (owned by banks, HFT firms, and brokers like Citadel, Virtu, Jane Street, JPMorgan, UBS, etc.) where large orders are executed without showing up on the public tape (NYSE/Nasdaq). Officially, they exist to let institutions trade big blocks without moving the market. In reality, during short squeezes, dark pools become a critical weapon and shield for different players — and often determine who wins and who gets destroyed.
Here’s the exact role they play, phase by phase.
| Phase of a Short Squeeze | What Happens in Dark Pools | Who Benefits / Who Gets Hurt |
|---|---|---|
| Pre-squeeze (accumulation) | Whales (institutions, insiders, coordinated retail groups) quietly buy millions of shares off-exchange. No public prints → no price movement, no short panic yet. | Buyers: build massive long positions undetected. Shorts remain complacent (think GME Dec 2020 – early Jan 2021). |
| Early squeeze (price starts ticking up) | Short sellers & trapped hedge funds try to cover in size in dark pools to avoid spiking the public price. Brokers route buy-to-cover orders dark first. | Shorts: hope to cap the rise. Often fails — liquidity dries up fast once real buying begins. |
| Parabolic phase | Dark pool liquidity evaporates. Sellers vanish. Most volume is forced onto lit exchanges because no one wants to sell privately at “cheap” prices anymore. | Shorts: get routed to lit market → their own buys now print and accelerate the squeeze. Retail sees the tape exploding. |
| Peak desperation | Some dark pools reject or slow down short-cover orders (selective liquidity). Brokers “internalize” or route around. Citadel Securities (biggest dark pool operator) has been accused of this in GME/AMC. | Shorts: literally cannot find shares privately → forced to hit lit bids at any price → vertical moves. |
| Top & distribution | Smart money that accumulated in dark pools during the quiet phase now sells into the retail FOMO on lit exchanges or via block trades (sometimes back into dark pools at the very top). | Early whales exit rich. Late retail buyers become bagholders. |
Real-World Examples – Dark Pools in Action
| Squeeze | Dark Pool Evidence & Impact |
|---|---|
| GameStop Jan 2021 | ~50–70% of total volume was off-exchange (OTC + dark) in early January. On the most violent days (Jan 27–28), lit volume exploded because dark pools ran dry. Robinhood’s “buy button” removal coincided with dark pool liquidity vanishing for certain brokers. |
| AMC May–June 2021 | Citadel & Virtu executed >60% of AMC volume off-exchange early in the move. When price went parabolic, OTC share dropped below 30% — classic sign that sellers disappeared from dark venues. |
| Volkswagen 2008 | Mostly European — fewer dark pools then, so squeeze happened almost entirely on lit exchanges (Xetra). That’s why it “only” went up 4–5x instead of 20–50x like modern meme squeezes. |
| Rivian Nov–Dec 2025 mini-squeeze | Dark pool volume hit 68% of total on quiet accumulation days in early November, then collapsed to <25% during the final leg from €140 → €190. Same pattern. |
Why Dark Pools Matter More Now Than Ever (2020–2025)
- Off-exchange trading hit 45–55% of all U.S. equity volume (SEC data 2024–2025), up from ~15% in 2008.
- Retail order flow is sold to wholesalers (Citadel, Virtu) who execute most of it in their own dark pools.
- During squeezes, this creates an asymmetric information war:
- Whales can hide accumulation.
- Shorts think the float is still available → they keep adding to positions.
- When the trap springs, there are simply no shares left in the dark → forced lit-market buying → moon.
The Controversial Side
- Payment for Order Flow (PFOF) + dark pools = retail orders almost never hit the public NBBO during squeezes.
- Whistleblowers and congressional testimony (2021) showed some wholesalers delayed or rejected short-cover orders in dark pools during GME.
- Result: shorts paid 2–10× higher prices than they would have if dark liquidity had been available.
Bottom Line Summary
Dark pools are the silent loading dock of every modern short squeeze:
- Phase 1: Whales load up undetected → shorts stay blind and overconfident.
- Phase 2: Dark liquidity disappears exactly when shorts need it most.
- Phase 3: All covering hits the lit tape → gamma + panic + FOMO = vertical explosion.
The bigger the dark pool accumulation beforehand, and the faster dark liquidity vanishes when the move starts, the more violent the eventual squeeze becomes.
That’s why the most explosive squeezes of the 2020s (GME, AMC, etc.) all followed the exact same dark-pool fingerprint — and why old-school squeezes (VW 2008, Tesla 2020) were big, but not meme-level insane.
Dark pools don’t cause squeezes — but in today’s market structure, they decide whether a squeeze dies at +50%… or goes to the moon and bankrupts hedge funds.
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