A long squeeze is a situation in which

investor An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...

s who hold

long position In finance, a long Position (finance), position in a financial instrument means the holder of the position owns a positive amount of the instrument. The holder of the position has the expectation that the financial instrument will increase in valu ...

s feel the need to sell into a falling market to limit their losses. This pressure to sell usually leads to a further decline in

market price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...

s caused by the supply/demand-imbalance. This situation is less common than the opposite

short squeeze In the stock market, a short squeeze is a rapid increase in the price of a stock owing primarily to an excess of short selling of a stock rather than underlying fundamentals. A short squeeze occurs when there is a lack of supply and an excess of ...

, because in a short squeeze, the traders who have bought the

short Short may refer to: Places * Short (crater), a lunar impact crater on the near side of the Moon * Short, Mississippi, an unincorporated community * Short, Oklahoma, a census-designated place People * Short (surname) * List of people known as ...

contracts have a legal obligation to settle with the promised shares. A trader who is 'long' in a long squeeze has no such obligation, but may sell out of fear of further losses. Other investors may see the rapid decline in price as irrational and a buying opportunity (more often than a rapid rise in price seen as a shorting opportunity). However, in times of significant market turmoil, identifying a long squeeze becomes of more practical interest rather than merely an investment opportunity. In 2008,

Bear Stearns The Bear Stearns Companies, Inc. was a New York-based global investment bank, securities trading and brokerage firm that failed in 2008 as part of the global financial crisis and recession, and was subsequently sold to JPMorgan Chase. The comp ...

was wiped out after market rumors that the company had cash concerns. Investors started selling the

scrip A scrip (or ''chit'' in India) is any substitute for legal tender. It is often a form of credit. Scrips have been created and used for a variety of reasons, including exploitive payment of employees under truck systems; or for use in local co ...

, resulting in a long squeeze, which triggered many other stop order losses and accelerated the decline of the company's stock. In 2020, the oil futures market saw a long squeeze when the price of near-month futures for

West Texas Intermediate West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract tr ...

oil fell below $0, causing long holders to be margin-called, forcing the price lower and triggering additional margin-calls, in a manner similar to a classic

, eventually reaching a bottom of $-37.63 per barrel, before later recovering to nearly $3.

External links

What is a Squeeze Play?

References

Business terms Stock market {{Business-term-stub