Short Squeeze
A short squeeze is a rapid price rise driven by short sellers rushing to buy back shares to limit their losses.
A short squeeze happens when a heavily shorted stock starts to rise sharply. Short sellers lose money as the price climbs, and many decide, or are forced by margin calls, to close their positions. Closing a short position means buying shares, and that extra buying pushes the price even higher, forcing more short sellers to buy. The result can be a very fast, steep rally.
Squeezes are more likely when short interest is high compared with the number of shares available for trading, and when it would take many days of normal trading volume for all short sellers to cover. A surprise piece of good news or a wave of buying from other investors can be the trigger.
Short squeezes are often short-lived. Once the forced buying is over, the price can fall back quickly, which makes these episodes very risky for anyone buying in late.
Example: a stock trading at $10 has a large share of its float sold short. A positive earnings surprise sends it to $13, short sellers rush to cover, and within days it reaches $25 before dropping again.