Feb. 3 at 10:50 PM
$MBAK
Part 2
Short Squeeze: A rapid price rise forces many short sellers to buy back shares simultaneously, which creates a self-feeding cycle of higher buying pressure and even steeper losses.
Additional Costs: Short sellers must pay interest on the borrowed shares, borrow fees, and any dividends paid by the stock during the short period.
Mandatory Buyback: Short sellers are legally obligated to return the borrowed shares. If the lender recalls the shares or the price becomes unsustainable, the short seller must close the position by buying back shares at the current higher price.
Example:If 100 shares are shorted at \(\
$80\) (total value \(\
$8,000\)) and the stock rises to \(\
$100\), the seller must pay \(\
$10,000\) to buy back the shares, resulting in a \(\
$2,000\) loss plus borrowing fees.