Hedge funds typically buy on margin so when they 'borrow' the 100 shares, they are only required to have a fraction of the amount borrowed in their account (eit

Hedge funds typically buy on margin so when they 'borrow' the 100 shares, they are only required to have a fraction of the amount borrowed in their account (either in cash or other securities) essentially to guarantee the broker doesn't get stuck holding the bag. They have to maintain this margin ratio (i.e. percentage of the position) whichever direction the stock is going. When there is a rapid increase in the price of a stock they have shorted, they will no longer meet the margin requirements. So they either need to deposit more funds/securities to keep the position going or start buying back shares to get back in line with their margin requirements. However, if the fund is maxed out on their positions buying back shares often just helps raise the price further causing them yet another margin problem... it's a downward spiral. Plus, once other hedge funds smell 'blood in the water', they'll start piling on too (i.e. buying shares raising the price further) knowing that the fund(s) that are in trouble have no choice but to cover their short position regardless of the price. That's part of why you'll see these gigantic price spikes.