Bear Squeeze

  

Categories: Derivatives, Stocks, Trading

Bad news on a camping trip. And for certain Wall Street traders.

You're probably familiar with the terms "bulls" and "bears" for stock trading purposes. Just in case you're not: bulls are betting that the market (or a particular stock) will go up...bears are betting that the market (or a particular stock) will go down.

A squeeze is a situation where one of those groups gets in a bad spot. A bear squeeze happens when conditions turn against the bears, usually forcing them to throw in the towel and give up their positions.

The connotation can imply that someone is purposely trying to force the bears to surrender. A central bank might be trying to drive up the price of its currency, so it takes steps to squeeze the bears and force them to cover their positions, helping to boost the price.

A bear squeeze will usually force a stock (or currency, or whatever) even higher.

So...a bunch of traders think that Grizzly Inc. is headed into the toilet. They short the stock, betting that it will go down. But a few days later, a famous hedge fund manager says something nice about Grizzly on a finance TV show. The stock rises. It keeps rising to the point where the bears decide to cut their losses. When they cover their shorts (get squeezed out), they buy stock to close out their positions. This buying becomes fuel for another push higher for Grizzly's share price.

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