Top 5 biggest short squeezes

Short squeezes aren’t new, but they’ve gained attention in recent years, thanks to high-profile surges in stocks like GameStop, AMC, and Tesla. Driven by shifts in sentiment, surprise news, or momentum buying, squeezes can spark sharp moves that catch both bulls and bears off guard.

This guide covers five of the most iconic examples, from Volkswagen in 2008 to more recent surges – each showing how short interest, liquidity, and timing can collide to create dramatic market moves.

What is a short squeeze?

A short squeeze occurs when a heavily shorted stock starts climbing, forcing short sellers to buy back shares to cut their losses. That rush to cover accelerates the rally, driving prices even higher.

Short selling means borrowing and selling a stock in hopes of buying it back cheaper. But if the price rises instead, losses can mount. At a certain point, short sellers may be forced to close their positions – often suddenly – fuelling a rapid price spike.

Triggers can range from strong earnings to analyst upgrades or changing sentiment. Squeezes are more likely when a high percentage of shares are shorted—and retail coordination or social media buzz can amplify the move.

AMC short squeeze

At the start of January 2021, AMC Entertainment Holdings (AMC) was trading around $12.64 per share, with the company still under pressure from pandemic-related closures. Short interest was considered unusually high – around 20% of the float – as many institutional traders bet against the survival of the cinema chain.

By early June 2021, however, the share price had surged by more than 3,500%, reaching an intraday high of $456.60. Much of the momentum came from retail traders, who coordinated via Reddit forums and social media platforms. Many appeared motivated to push the price higher and potentially force short sellers to cover, contributing to a squeeze.

This triggered a classic short-covering rally, though other factors such as options activity and momentum buying also played a role. As the share price spiked, those holding short positions were forced to buy back stock, further accelerating the upside move. Volumes jumped sharply and AMC became one of the most actively traded stocks on US exchanges during the squeeze.

Trade AMC Entertainment shares CFDs.

Tesla short squeeze

Tesla’s short squeeze, which happened between 2019 and 2021, was driven by high short interest, improving fundamentals, and a surge in retail buying. At its peak, TSLA was the most shorted stock globally, with over 20% of its float sold short. But instead of falling, the Tesla share price more than quadrupled across 2020, forcing many traders to cover at steep losses.

The squeeze was triggered by better earnings, record vehicle deliveries, and growing optimism around EV adoption. A five-for-one stock split in August 2020 made shares more accessible to retail traders, while anticipation of Tesla’s inclusion in the US 500 (S&P 500) added further momentum.

As the rally accelerated, covering by short sellers added fuel to the surge. TSLA ended 2020 above $235 (split-adjusted), with short sellers losing an estimated $38 billion that year alone – one of the costliest squeezes in history.

Trade Tesla shares CFDs.

GameStop short squeeze

In early 2021, GameStop (GME) surged from around $4.42 on 8 January, to an intraday high of $120.75 on 28 January, marking a price gain of over 2,600%.

The setup was extreme: short interest had exceeded GameStop’s public float, increasing the risk of sustained buying triggering rapid covering. As retail interest spiked – driven in part by discussions on Reddit (r/WallStreetBets) – the stock began climbing sharply, forcing short sellers to exit at a loss. That covering helped propel the price even higher.

Low-cost apps like Robinhood drove broad participation, while social media created a feedback loop of visibility and momentum. At the peak, several platforms restricted buying due to factors including collateral requirements at clearing houses, which influenced regulatory scrutiny and retail backlash.

GameStop’s short squeeze is among the most recognised in recent trading history and remains a widely cited example of crowd-driven price action. It's a common talking point in discussions of how short interest and retail flows can contribute to high-profile short squeeze stocks.

Trade GameStop shares CFDs.

Volkswagen short squeeze

The Volkswagen (VOW) short squeeze of 2008 remains one of the largest and most dramatic examples of a large-cap stock move triggered by positioning rather than fundamentals. It briefly made VW the most valuable listed company in the world by market cap – a result of constrained supply meeting urgent demand from short sellers.

In late October 2008, during the peak of the global financial crisis, Porsche unexpectedly disclosed that it held 42.6% of Volkswagen shares and had cash-settled options for an additional 31.5% – giving it exposure to over 74% of VW’s stock. With the state of Lower Saxony owning another 20%, as little as 6% of shares remained as free float.

At the time, VW was heavily shorted. Many hedge funds had taken positions betting the price would fall. But Porsche’s announcement meant there were far fewer shares available to buy back. This created a classic squeeze: as short sellers scrambled to cover, the share price soared.

VW shares jumped from €210.52 at close on 24 October to a high of €611.00 on 27 October 2008, before peaking at €990.00 on 28 October. Short sellers were left with billions in losses. German authorities later investigated Porsche’s actions, but charges were ultimately dropped and management acquitted.

Source: Frankfurt Stock Exchange (Deutsche Börse Xetra)

Trade Volkswagen shares CFDs.

Herbalife short squeeze

The Herbalife (HLF) saga wasn’t marked by a sudden price spike – but by a drawn-out, high-profile standoff between billionaire investors Bill Ackman and Carl Icahn.

In late 2012, Ackman publicly revealed a $1bn short position, accusing Herbalife of operating a pyramid scheme through its multi-level marketing model. He launched a detailed, multi-year campaign against the company.

In response, Carl Icahn took the opposite side – buying heavily and eventually amassing more than 25% of the company. Herbalife countered with share buybacks, business adjustments, and consistent earnings. The stock gradually climbed, even amid regulatory scrutiny, including a $200 million FTC settlement in 2016.

Rather than a momentum-driven spike, the squeeze unfolded slowly, powered by improving fundamentals and shareholder support. Ackman closed his position in early 2018, reportedly at a $1bn loss. Icahn, by contrast, exited with a profit after scaling down his stake.

Trade Herbalife shares CFDs.

Why do short squeezes matter to investors?

Short squeezes show how positioning, sentiment, and liquidity can sometimes move markets – occasionally overshadowing company fundamentals – over the short term. For investors and traders, such events are a useful reminder that price action can be shaped by behaviour, not just valuation.

For contracts for difference (CFD) traders, squeezes can signal volatility. They highlight how crowded short positions, limited free float and momentum can combine to drive sharp, rapid moves – making them relevant both for potential opportunities and risk management.

A squeeze in one stock may also affect others. Index constituents, sector peers or ETFs can be affected – particularly when trading volumes rise or sentiment changes rapidly. So even if you're not holding the stock directly, you could face indirect exposure.

Well-known cases – such as the GameStop and AMC short squeezes – have also led to more focus on how markets function. Order flow, leverage and transparency remain under debate in 2025, with potential implications for retail and institutional traders alike.

How to identify a short squeeze

For CFD traders, spotting a potential short squeeze early can offer both trading opportunities and risk signals. While there’s no guaranteed method, several indicators can help highlight situations where a squeeze may be more likely to occur.

• High short interest: a large percentage of shares sold short can make a stock more susceptible to a squeeze. The short interest ratio (also known as days to cover) is calculated by dividing the number of shares shorted by the average daily trading volume, indicating how quickly shorts may be forced to exit.

• Breakout price action: a sharp move higher, especially through recent resistance, can pressure short sellers to cover. However, breakouts alone do not guarantee a short squeeze – use technical analysis and other indicators to gauge whether a breakout could sustain momentum

• Tight float or thin liquidity: stocks with limited tradable shares may be prone to more pronounced price movements when sentiment changes. In CFD share markets, this could mean faster price moves and wider spreads, increasing both opportunity and risk.

• Volume spikes: sudden increases in trading volume, particularly after news or technical breakouts, may suggest the possibility of short covering activity – but can also be driven by other factors.

Past performance isn’t a reliable indicator of future results.

What are the risks and opportunities of short squeezes?

Short squeezes can present both trading opportunities and risks – depending on how price, positioning and market conditions interact.

Fast moves, fast losses

Squeezes can unfold at speed. Sharp upside moves over short periods may create wider spreads and slippage, particularly when liquidity is thin or market activity heightened. For CFD traders, that can make execution more difficult – and risk harder to quantify in real time.

Leverage magnifies risk

CFDs are traded on margin, which amplifies exposure. A well-timed long can deliver significant gains, but a failed breakout or reversal can result in equally large losses. Shorting into a squeeze or entering long positions late, after a rapid move, carries significant risk. Stop-loss orders can help manage this – though in fast markets, execution may be delayed or filled at a less favourable price, and stops are not always guaranteed.*

Not all spikes are squeezes

A true short squeeze involves forced buying by short sellers covering their positions, which can further accelerate price moves. Some rallies stall after early short covering or fail to attract sufficient follow-through buying. Chasing price without confirmation increases the risk of being caught in a false breakout – particularly when sentiment shifts quickly or volumes fade.

Technical analysis and volatility

When volatility rises, so does opportunity. Breakouts through resistance can offer long setups; failed squeezes or exhaustion patterns may suggest short entries. Volume spikes, technical indicators and price structure can help frame trades – but signals may be less reliable during volatile periods, so timing and discipline remain critical.

Contagion and correlation risk

Squeezes can affect more than just the stock in focus. Sector peers, ETFs, or index CFDs  may move as well. For traders with concentrated CFD portfolios, this can increase exposure to sudden swings – even in positions not directly involved in the squeeze.

^{*Guaranteed stop loss (GSL) incurs a fee.}

Short squeeze CFD trading strategies

CFD traders approach short squeezes with a mix of strategies. The aim is to capture price movements while managing risk in fast-moving markets.

Here are some examples:

• Swing trading strategy – swing traders look to capture multi-day moves during a squeeze, typically entering after confirmation of breakout strength. The aim is to ride the momentum while managing risk with trailing stops or fixed targets.

• Day trading strategy – day traders focus on intraday volatility. Traders may use five- or 15-minute charts to spot early breakouts, then trade the momentum as short covering accelerates. Positions are usually closed by the session’s end to avoid overnight risk.

• Position trading strategy – position traders seek to benefit from sustained price moves triggered by squeezes. This strategy commonly involves wider stops and longer-term trend confirmation.

• Trend trading strategy – trend traders aim to follow directional price action over days or weeks. The goal is to hold positions as long as the uptrend remains intact, while managing risk with predefined exit criteria.

Past performance isn’t a reliable indicator of future results.

For more techniques, visit our trading strategies page.

FAQs