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What is a short squeeze and a long liquidation? How do they occur, and more importantly, how do you make money from them? This trading strategy session with Brannigan answers these questions and defines the strategy while using multiple examples from various markets.
The textbook definition of a short squeeze is: a rapid increase in the price of an asset when there is a lack of supply and excess demand. The squeeze results from short sellers covering their positions in the asset and leads to buying volume that drives the price higher.
One of the key ideas to trading a short squeeze (or long liquidation) is that given that nothing has changed fundamentally in the context of a large price movement, we should then see a mean reversion in the asset's price. Brannigan illustrates the trade strategy further using examples in the VW stock, the XIV (which no longer trades), the US T-Note, Italian BTP, and the US 2-10 yield curve.
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