The year was 2007 and I was trading in the Best Buy pit, slinging options on about 50 different stocks. One of the hot names in our pit was VMware. It was a tech stock, and it was hard to borrow.
As a market maker (the guy who has to quote a price to buy and a price to sell all day, whether he wants the position or not) I found myself short that stock constantly. Hedge funds kept using options to get short VMware, and hedging my side of those trades meant selling stock to protect myself. When the funds piled in, the shares got hard to borrow.
Hard to borrow means there aren't enough shares available for everybody who wants to short. I'd have to get a locate from my clearing firm, which is just permission saying they've found shares I can borrow. If I really needed the short off, I'd sell and pray the firm had the stock for me.
Most of the time they did.
Sometimes they didn't. A few days later they'd buy me in, which means the firm goes out and purchases the shares at whatever price it can get and hands me the bill. They'd usually get a terrible price, and the next day the stock would be lower. It kinda stunk.
One time it went the other way. VMware (VMW) rallied all session, and at the close my clearing firm bought me 5,000 shares somewhere around $64.
The next morning there must have been a lot of traders getting bought in right alongside me, because the stock was trading near $72 in the premarket. That's a short squeeze: enough shorts get forced to buy at the same time that their own buying pushes the price higher, which forces even more of them to buy.
I knew I already owned 5,000 shares from the night before. So I put my offer out and sold for nearly $8 a share, about $40,000.
I got lucky. That's the first and only time I ever fell into a squeeze by accident, and after that I went looking for them on purpose, in stocks I was making markets in and stocks I wasn't.
General Motors (GM), NovaStar Financial, and Countrywide all come to mind. NovaStar was my first million-dollar trade.
If I could've spent my whole career trading nothing but short squeezes, that's all I would've done. Seriously. In 2025 I asked whether AI could find them for me, and the answer was a resounding yes!
So I took everything I know about squeezes and built it into a system. It scours the entire market for setups, which is something I could never do standing in a pit with 50 stocks in front of me.
To find out more about it, tap this link to check it out.
Your only option,
Mark Sebastian