Understanding Short Selling and Short Squeezes

What is a short squeeze?

• A situation where a stock's price falls rapidly

• A scenario where short sellers are forced to buy back shares at higher prices

• A strategy to profit from rising stock prices

• A method to reduce trading fees

What is the theoretical maximum loss in a short sale?

• Equal to the stock's current price

• Capped at 50% of the stock's value

• Unlimited

• Limited to the initial investment

In short selling, what is the primary goal of the investor?

• To buy high and sell low

• To sell high and buy low

• To hold stocks for long-term gains

• To avoid all market risks

What can trigger a short squeeze?

• A decrease in trading volume

• An unexpected positive earnings report

• A decline in market interest rates

• A stable stock price

How can activist investors influence a short squeeze?

• By selling all their shares

• By acquiring a large stake and stirring interest

• By ignoring market trends

• By reducing the stock's trading volume

Why might traders use limit orders when short selling?

• To guarantee a profit

• To avoid paying transaction fees

• To prevent the trade from filling at an unexpected price

• To ensure the trade fills at any price

What is a margin call in the context of short selling?

• An opportunity to buy more shares at a discount

• A demand to deposit more funds to cover potential losses

• A notification of a successful trade

• A request to increase the number of shares shorted

What is a potential consequence of not having an exit strategy during a short squeeze?

• Guaranteed profits

• Unlimited losses

• Increased stock dividends

• Reduced trading fees

Why is it important to plan both entry and exit strategies in trading?

• To ensure maximum losses

• To avoid making any profits

• To manage risks and potential gains effectively

• To guarantee a fixed return

What is a stop order used for in trading?

• To avoid paying taxes on profits

• To guarantee a trade fills at any price

• To protect against extreme losses

• To increase the stock's price