WTCG Ready For A Short Squeeze. Find Out Why
Tonight I’m going to explain exactly what “shorting” is, why people short, what a “short squeeze” is and why I think WTCG could be finding itself in a situation for a short squeeze. But to really understand how this all works, we really need to start from the beginning and see how people make money from selling a stock short and what kinds of risks are involved. Once you see that, I think it will make much more sense as to how a short squeeze could created uncapped opportunity to profit in the market:
The Definition Of A Short Sale
According to the SEC website, a short sale is “generally the sale of a stock you do not own (or that you will borrow for delivery). Short sellers believe the price of a stock will fall, or are seeking to hedge against potential price volatility in securities that they own.
If the price of the stock drops, short sellers buy the stock at the lower price and make a profit. If the price of the stock rises, short sellers will incur a loss. Short selling is used for many purposes, including the ability to profit from an expected downward price movement, to provide liquidity in response to unanticipated buyer demand, or to hedge the risk of a long position in the same security or a related security.”
An Example Of How Short Sellers Profit:
Here’s the Premise:
An investor believes that there will be a decline in the stock price of Company ABC.
The Short Sale Process:
Company ABC is trading at $.06 a share, so the investor borrows shares of Company ABC stock at $0.06 a share and immediately sells them in a short sale. Later, Company ABC’s stock price declines to $0.04 a share, and the investor buys shares back on the open market to replace the borrowed shares. Since the price is lower, the investor profits on the difference — in this case $0.02 a share (note that this profit doesn’t include any transaction costs such as commissions and fees).
So What Risks Are Involved for Short Sellers?:
The major risk involved is the infinite amount of loss that can come about if the stock price goes up. If the price of the stock increases from the original price, the investor loses money. Unlike a traditional long position — when risk is limited to the amount invested — shorting a stock leaves an investor open to the possibility of unlimited losses, since a stock can theoretically keep rising indefinitely. So in the example above, if the stock price jumps from $0.06 to $0.26, the short seller would need to spend an additional $0.20/share in order to buy back the shares to return to the broker he borrowed them from. Instead of realizing a gain, there is actually a $0.20 loss! In the penny stock market that $0.20/share could mean thousands or even hundreds of thousands of dollars down the drain!
Where Do Day Traders Make Money On Short Sellers?
The fastest way to capitalize on short sellers is to look for opportunities to “squeeze”. In a perfect case scenario, a “short squeeze” happens when there is a heavy amount of short volume in a stock and an increase in buying comes into the market. When stock price starts to rise rapidly, short sellers want out. This is because an investor who shorts a stock only profits when the stock goes down. However, an investor’s losses are a short squeezer’s gains, because the short squeezer is able to find the window of time in which a stock will be on the rise, buy into the stock and sell at its peak. Sound like an appealing technique?
How Does This Involve WTCG?
Since October 17th there have been a total of nearly 100M shares in short volume in the market for WTCG according to OTCShortReport.com. Right now for shorts to keep making money, they need to let the price go up in order to short it back down but the issue that many of them face right now is that most of them have shorted this stock right around the current price. In fact over the last 6 trading days, more than 67% (or a mere $26k) of the 100M in short volume has come in, so the opportunity for a squeeze is imminent in my opinion.
Therefore, if WTCG sees an increased amount of early buying in the market, then these short sellers could be in the uncomfortable position to have to cover. What that means is that they will need to start buying at much higher prices in order to have enough shares to give back to the brokers that they’ve borrowed shares from. That could offer a huge opportunity to profit as the stock price could explode and in my opinion that may be just the right recipe for day traders to make money on bloated shorts that aren’t anticipating a squeeze!
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