![vw squeeze vw squeeze](https://i.pinimg.com/originals/bb/1f/f7/bb1ff7291def97eb866c0b03327ee731.jpg)
We also find that the short squeeze altered price discovery in VW’s stock.
![vw squeeze vw squeeze](https://www.shoujitoutiao.com/Uploads/Media/Aug20/Wed26/660/93854f68.jpg)
For example, we find that during the squeeze period relative bid-ask spreads and volatility for VW (VW’s competitors) increased by 61 (10) and 193 (41), respectively. This compared with an average 5 percent for all DAX stocks. We find that the short squeeze worsened market quality for both VW and VW’s competitors. It said it was announcing its plans because the number of short positions in VW were considerably higher than it expected and it consequently wanted to give investors the chance to unwind their bets “without haste and without greater risk.”Īround 12.8 percent of Volkswagen’s entire market capitalization was on loan as of October 25, the most recent day for which data was available, according to financial market data consultant. Porsche’s statement on Sunday revealed that it had raised its direct stake to 42.6 percent, held a further 31.5 percent in cash-settled stock options and that it intended to increase its holding in the world’s third largest carmaker to 75 percent next year. In March, when Porsche was still sitting on a long-held 31 percent direct stake, it said it was not seeking to increase its holding to 75 percent, bearing in mind that the state of Lower Saxony holds a 20 percent stake in VW. The share price has rocketed since Porsche revealed in a surprise announcement on Sunday that it had effectively gained control of 74 percent of Volkswagen’s voting shares. VW shares later closed trading on Tuesday up 82 percent at 945 euros. Short sellers desperate to close their positions paid as much as 1,005 euros a share during the session following Sunday’s news that there was less than 6 percent of VW voting stock still floating in the market.Īt that price Volkswagen's voting stock was worth 296 billion euros ($370 billion), or more than the $343 billion market capitalization of Exxon Mobil XOM.N.
![vw squeeze vw squeeze](https://assets.cmcmarkets.com/images/VW_5Dec_OPTO_large.jpg)
If you see that, then it’s time to be worried.A share trader points on the curve showing the course development of the shares of German car manufacturer Volkswagen AG on a trading terminal at the German stock exchange in Frankfurt, October 28, 2008. It’s certain that traders short volatility will get hurt badly in the future by volatility spikes, but I think it’s unlikely a real short squeeze will materialize.Ī sure sign of a true squeeze (or a flash crash) is abnormally wide bid/ask spreads-it indicates market makers are having difficulties hedging their positions. The volatility ETPs are based on the VIX futures and benefit from that underlying liquidity and the options can be hedged a mind-numbing number of ways. The VIX futures market is pretty big and VIX futures can be hedged with the S&P 500 options market-which is really big. The only plays are futures, ETPs, and options-none of which require a company to go through exceptional measures to issue shares in order to provide liquidity. In the case of volatility, there is no “Volatility Inc.” out there. In the case of VW, the amount of stock available to buy was so meager the price shot up 82% in one day, making VW’s market cap €300 Billion, the highest in the world-exceeding ExonMobile, the leader at the time for a day. With company stocks it’s not possible for the market markers to facilitate share creation-the company itself must either issue additional stock or sell shares it controls. With options, futures, and Exchange Traded Products (ETPs) market makers can usually provide additional long or short contracts or shares at will-obliging the market by taking the opposite side of the trade, which they usually hedge with other securities or in the case of ETPs create or redeem shares via the issuers. A classic case occurred with VW in 2008 when Porsche unexpectedly bought VW and ended up controlling 74% of the outstanding shares of VW. What makes a squeeze a squeeze is a lack of liquidity. In fact, declines are almost always faster and deeper than rallies, but somehow we don’t see “ long squeeze” in headlines very often-I guess “crash” or “panic” works well enough. However this phenomenon is not so different than what happens on the long side when a security starts dropping rapidly stop-loss orders start triggering, traders start getting margin calls and panicky sellers drive the price down even further. There’s a positive feedback loop when people closing out their short positions have to buy shares to cover-which drives the security up higher. Sure, if you’re short something that starts going up rapidly (e.g., Achman with Herbalife), life is not good. At the risk of being a curmudgeon, it appears to me that people don’t know what a short squeeze is. I’m seeing a lot of articles (e.g., here) warning about a possible short squeeze in volatility.