In early 2025, Goldman Sachs sounded the alarm: hedge funds are on edge, bracing for the potential of devastating short squeezes driven by the relentless power of retail investors.
The specter of the “mother of all short squeezes” looms large, with memories of the GameStop and AMC rallies still fresh in the minds of Wall Street titans.
These events showcased how coordinated retail investors, armed with social media and trading apps, can turn the tables on institutional giants, forcing hedge funds to rethink their strategies.
This article dives into the mechanics of short squeezes, the seismic impact of retail investor movements, and why the threat of another market-shaking squeeze has hedge funds rattled.
What Is a Short Squeeze? Understanding the Mechanics
A short squeeze occurs when a stock’s price surges, putting pressure on investors who have bet against it—known as short sellers.
These investors borrow shares and sell them, hoping to buy them back at a lower price to pocket the difference.
However, if the stock price rises sharply, short sellers are forced to buy back shares at higher prices to cover their positions, driving the price even higher in a feedback loop.
This dynamic can lead to explosive rallies, especially when retail investors act en masse.
The term “mother of all short squeezes” refers to an extreme scenario where a heavily shorted stock experiences a meteoric rise, inflicting massive losses on short sellers and reshaping market dynamics.
Goldman Sachs recently highlighted this risk, noting that hedge funds are increasingly wary of elevated trading volumes in certain stocks, which signal the potential for such squeezes.
Goldman Sachs’ Warning: Hedge Funds on High Alert
In January 2025, Goldman Sachs reported a surge in hedge fund anxiety over short squeezes, driven by heightened retail trading activity.
John Marshall, head of derivatives research at Goldman, noted an “unusual number of requests” for tools to manage short squeeze risks, as funds fear a repeat of past market disruptions.
Stocks like GameStop (GME) and AMC Entertainment (AMC) remain prime candidates for squeezes due to their high short interest and loyal retail investor bases.
Marshall pointed to elevated option volumes—near multi-year highs—as a key indicator of brewing volatility, signaling that retail traders are once again flexing their muscle.
This warning underscores a broader shift in market dynamics.
Hedge funds, once dominant players, now face a formidable opponent in retail investors who coordinate through platforms like Reddit’s r/wallstreetbets and X.
The fear is not just about individual stocks but the potential for a cascading effect, where a single squeeze triggers broader market turmoil—a scenario Goldman Sachs has cautioned could destabilize Wall Street if left unchecked.
The GameStop Saga: A Blueprint for the Mother of All Short Squeezes
The GameStop short squeeze of January 2021 remains the gold standard for retail-driven market uprisings.
At the time, GameStop was heavily shorted, with over 140% of its public float sold short—a rare and precarious situation.
Retail investors, galvanized by r/wallstreetbets, saw an opportunity to challenge Wall Street’s bearish bets.
They began buying shares and call options en masse, driving the stock price from $17.25 to a pre-market peak of over $500 in just weeks.
This frenzy forced short sellers, including hedge funds like Melvin Capital, to cover their positions at staggering losses.
Melvin alone reportedly lost billions, requiring a bailout from other funds.
The GameStop rally wasn’t just a financial event; it was a cultural phenomenon, symbolizing the power of retail investors to disrupt entrenched Wall Street norms.
The stock’s volatility also spilled over into other heavily shorted names, amplifying the chaos and cementing the idea of a potential “mother of all short squeezes.”
Retail investors didn’t stop there.
In May 2024, the return of Keith Gill—aka “Roaring Kitty”—sparked another GameStop surge.
A single cryptic post on X sent the stock soaring from under $14 to over $48, allowing GameStop to raise over $900 million by issuing new shares.
This episode reinforced the enduring influence of retail traders and their ability to move markets with minimal provocation.
Related: GameStop Insiders Now Buying: Alain Attal Bets Whopping $257,500
AMC: The Movie Theater Stock That Defied Gravity
AMC Entertainment’s 2021 rally is another case study in retail investor power.
Like GameStop, AMC was heavily shorted, with hedge funds betting on its demise amid pandemic-driven theater closures.
Retail investors, however, saw value in the company and a chance to punish short sellers.
Through coordinated buying, they propelled AMC’s stock price from single digits to a peak of over $70 by June 2021, a rise of over 2,000% year-to-date.
The AMC squeeze inflicted significant pain on short sellers, with some estimates suggesting losses in the hundreds of millions for funds caught off-guard.
Retail investors, dubbed “apes” in online forums, held firm, using social media to rally support and maintain upward pressure.
Even in 2025, AMC remains a focal point for retail traders, with short interest hovering around 22% and a high cost-to-borrow rate, signaling ongoing squeeze potential.
The Power of Retail Investors: A Force Against Wall Street
The GameStop and AMC rallies revealed a new reality: retail investors, when united, are a force to be reckoned with.
Unlike institutional investors, who rely on complex strategies and vast resources, retail traders leverage sheer numbers, social media coordination, and a willingness to hold positions—often encapsulated in the mantra “diamond hands.”
Platforms like Reddit, X, and Discord amplify their reach, allowing them to share strategies, spotlight heavily shorted stocks, and mobilize quickly.
This collective power has upended traditional market dynamics.
In 2021, retail trading accounted for a significant portion of market volume, with Goldman Sachs noting that household cash reserves—bolstered by stimulus checks and pandemic-era savings—fueled the boom.
By 2025, retail investors remain a potent force, with access to commission-free trading apps like Robinhood and Webull democratizing market participation.
Their ability to target specific stocks creates asymmetric risks for hedge funds, who can no longer assume dominance over price discovery.
The cultural impact is equally profound.
Retail investors see themselves as underdogs challenging Wall Street’s elite, a narrative that resonates widely.
This sentiment drives their commitment, turning short squeezes into both financial strategies and ideological battles.
The “mother of all short squeezes” isn’t just a market event—it’s a symbol of retail empowerment.
Why Hedge Funds Are Worried: The Threat of Another Squeeze
Hedge funds’ concerns stem from several factors:
- High Short Interest in Vulnerable Stocks: Stocks like AMC, Hims & Hers, and MARA Holdings rank among the most shorted in the Russell 3000, making them prime targets for retail-driven squeezes. Goldman Sachs noted that short interest exceeding 100% of a company’s float, as seen with GameStop in 2021, is rare but catastrophic when triggered.
- Retail Coordination and Volatility: Social media platforms enable rapid mobilization, catching hedge funds off-guard. The 2024 GameStop surge, sparked by a single X post, showed how quickly sentiment can translate into market action.
- Market-Wide Risks: Goldman Sachs has warned that a severe squeeze could ripple beyond individual stocks, forcing funds to liquidate other positions to cover losses. This deleveraging could depress broader indices, a scenario that haunted markets during the 2021 frenzy.
- Options Activity: Retail traders’ use of call options amplifies price movements, as market makers hedge their exposure by buying underlying shares. This dynamic, evident in both GameStop and AMC rallies, magnifies squeeze potential.
The fear of a “mother of all short squeezes” keeps hedge funds on edge, as the line between a manageable correction and a market-wide crisis grows thin.
Goldman Sachs’ data suggests that hedge funds are actively reducing short exposure, but the risk persists as long as retail investors remain vigilant.
Related: Hedge Funds are now being hit by massive margin calls
Lessons from the Past, Warnings for the Future
The GameStop and AMC squeezes offer critical lessons.
First, retail investors have proven they can disrupt even the most sophisticated hedge fund strategies.
Second, short squeezes thrive on high short interest, coordinated buying, and unexpected catalysts—conditions that persist in 2025.
Third, Wall Street’s underestimation of retail power has been a costly mistake, one that Goldman Sachs’ warning seeks to correct.
Looking ahead, the potential for another “mother of all short squeezes” depends on several factors: sustained retail engagement, the identification of new squeeze candidates, and broader market conditions.
Stocks with high short interest, like AMC and GameStop, remain flashpoints, but others could emerge as retail traders scan for opportunities.
Meanwhile, hedge funds are adapting, using advanced tools to monitor retail sentiment and mitigate risks.
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The Retail Revolution Reshapes Wall Street
Goldman Sachs’ warning is a stark reminder that short squeezes are no longer fringe events—they’re a structural risk in today’s markets.
The GameStop and AMC rallies demonstrated the raw power of retail investors, who transformed from scattered individuals into a coordinated force capable of humbling Wall Street giants.
As hedge funds brace for the next potential squeeze, the specter of the “mother of all short squeezes” looms as both a threat and a testament to the democratized market of the 21st century.
Retail investors have rewritten the rules, proving that unity and determination can rival even the deepest pockets.
Whether the next squeeze reshapes markets or fizzles out, one thing is clear: Wall Street will never underestimate the apes again.
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Also Read: Investors now urge President Trump to investigate naked short selling in formal letter
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