SETTING THE STAGE

On the social media site Reddit, there is a forum entitled Wall Street Bets (r/wallstreetbets). This is a forum managed by Reddit users (Redditors) where the people of Reddit discuss and exchange investment strategies. About a month ago, there was a collaborated effort organized on r/wallstreetbets to stick it to the hedge funds that were trying to bankrupt GameStop: they organized for everyone to go and buy GameStop stock, among others that hedge funds has shorted, in order to drive up their stock prices. This movement was very successful in bringing Reddit users, Robinhood users, and other retail investors to all invest in a few shorted stocks.

As the price climbed, the hedge funds lost more and more money on their shorts - so much so that they were forced to buy some of their shares back at an absurdly high price, creating a short squeeze. A short squeeze happens when the holder of the short does have enough capital in hand to justify the shorted position.