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What do you mean by short covering from margin calls? What's causing the margin calls?

• mncolinlee 14y ago
  You can only "short" a stock by borrowing the shares using margin. (Put options are another way, but that is actually a side bet, not the same as short selling.) If you exceed the margin requirements because the stock price rises i.e. you owe more than you have capital and credit on hand, your brokerage may force you to "cover" or buy the underlying stock at the current market price. They do this to "call in" your debt to them. This is referred to as a "margin call." When a lot of short margin calls happen all at once, this is called a "short squeeze" because it squeezes more short sellers into covering by buying the stock at the current market price, which in turn causes the price to rise and squeeze other investors. In the case of Tesla, the stock is not very liquid. At the current volume, it would take thirty days for all short investors to find enough shares to cover their debts. This means a short squeeze can result in dramatic hikes in the stock price and even small hikes in the price can amplify short seller losses.