What is a Short Squeeze? Let’s take a closer look at short-selling, a strategy that allows traders to profit from a stock's decline. Short sellers make money by “shorting” stocks they believe are overvalued or poised for a downturn. Here’s how it works:When you short a stock, you first "borrow" shares from your broker (e.g., through platforms like Robinhood or Schwab) at the current market price. The goal is to repurchase the stock later at a lower price, return it to the broker, and pocket the difference. For example, let’s say after conducting thorough research, you identify a stock priced at $100 that seems overpriced and likely to drop. You can borrow shares of this stock from your broker and...
What is Position Trading? Position trading is a medium to long-term investment strategy where traders hold positions in financial assets, such as stocks, commodities, or currencies, for extended periods, typically ranging from several months to a few years. The primary goal is to capitalize on long-term trends rather than short-term price fluctuations. Key Characteristics of Position Trading: Long-Term Outlook: Position traders focus on broader market trends and fundamental factors, such as economic indicators, company performance, and geopolitical events, rather than short-term market noise. We primarily choose our companies based on fundamental strength, specifically by looking at their financial statements and focusing on value. We try to buy undervalued companies and hold them until they move higher as markets recognize the...
What’s happening with $SMCI? Super Micro Computer shares have moved over 200% in 2024 as the stock experiences what’s known as a “short squeeze”. The basics of a short squeeze is that Wall Street and traders will look for stocks that are heavily shorted (bet against) and begin buying them up in order to force the short positions to close. For a short trader to close their position, they need to buy it back at that price. Shorting a stock means you’re borrowing shares from your broker at a price, you take the shares and try to sell them to the market at a lower price, then give the shares back to your broker and keep the difference. So if...
Option Open Interest vs. Volume Option volume and open interest are used simultaneously by traders to gauge the liquidity and activity of option contracts. They are often confused for one another because they both measure the amount of contracts traded, but one measures the trade activity in a given period, while other measures the open, unsettled contracts. Volume is what traders focus on through the day to gauge how much activity the specific contract has. This metric is updated throughout the trading day and each transaction, buy or sell, is counted in the volume. Volume is especially helpful when day trading because the higher activity contracts can provide price targets depending on their strike for the trader. Open interest is...
