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I'm looking at TSLA and it has risen some 250% in the past 4 months on not much news and it seems a lot of it has been due to a short squeeze (as I understand). Since the stock has been artificially rising due to the short squeeze, would it be safer to go into a short position now since most shorts have been covered leaving the price even more overvalued than previously?

By the way, not asking for trading advice (I'm not planning to trade or short TSLA) this was just a shower-thought I had.

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    I doubt that "most shorts have been covered". I would surmise that most shorts in the $500 area have been covered but a lot of new shorts have come in at the $900 level. It's likely that the short interest has declined but it's definitely nowhere near gone. – Bob Baerker Feb 22 at 17:22
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A true "squeeze" happens much faster, almost like a crash in reverse. On the order of a few days at most you would see sharp spikes in price, causing an avalanche of margin calls leading to forced covering at any price. As such, any pressure playing out on shorts over a longer period of time is going to be more of a slow bleed, as shorts are slowly forced out. At the same time, more shorts can more easily be persuaded to enter the market due to the lack of extreme volatility makes trying to short the top of a squeeze similar to try to "catch the falling knife" in a crash.

Whether or not it's safer is a relative term. As Buffet says about being long, if you buy at a lower price in a good company then you have more of a buffer. Likewise, if you short higher in a bad company you also have more of a buffer, but by nature shorting is a much riskier proposition even in the best case.

By the way, on a longer time frame like months that we are talking about, you have a better opportunity to test your hypothesis that "most shorts have been covered" by checking changes in short interest over that time frame.

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  • The classic short squeeze is considered to be when price rockets up quickly all at once. However, a short squeeze can last for days and occasionally, for weeks. I would offer that a $400 up move in TSLA in a week was definitely a short squeeze. – Bob Baerker Feb 22 at 17:02
  • @BobBaerker Definitely, especially if there is less float. I recall once long ago seeing the stock in a furniture company that seemed to have a short squeeze that lasted 4-5 days. Basically each day there was a gap at the open each day followed by mostly sharp upward moves with little trading in between. – Michael Feb 22 at 18:06

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