July 24, 2025 — The stock market has witnessed a dramatic surge in heavily shorted stocks in recent weeks, delivering substantial losses to short sellers betting against these companies.
This rally, driven by a combination of market dynamics, policy shifts, and renewed investor optimism, has caught many bearish investors off guard, forcing them to cover positions at steep losses.
Stocks like Krispy Kreme (DNUT), Kohl’s (KSS) and Upstart Holdings (UPST) have led the charge, with short sellers collectively losing billions.
Short selling involves borrowing shares and selling them with the expectation of buying them back at a lower price to profit from the decline.
However, when stock prices rise sharply, short sellers are forced to buy back shares at higher prices to cover their positions, triggering what’s known as a “short squeeze.”
Since the market bottomed, the S&P 500 has risen over 25%, with short sellers facing losses totaling nearly $355 billion since April 8.
From May 22 alone, the losses have exceeded $100 billion, according to GuruFocus.
Krispy Kreme (DNUT) and GoPro have surged in what analysts describe as a “meme stock frenzy,” with investors piling into heavily shorted names, driving prices higher.
Other stocks, such as Upstart Holdings (UPST), Carvana (CVNA), and Opendoor Technologies (OPEN), have also experienced sharp price increases, further squeezing short sellers.
These movements reflect a broader trend where stocks with high short interest—measured as a percentage of shares sold short relative to the total float—are seeing rapid repricing, often driven by unexpected positive developments or coordinated retail investor activity.
Why Are Heavily Shorted Stocks Surging?
These factors are contributing to this rally in heavily shorted stocks:
- Meme Stock Resurgence: The retail investor frenzy, reminiscent of the 2021 GameStop (GME) and AMC Entertainment (AMC) sagas, has returned with a vengeance. Stocks like Opendoor, Krispy Kreme and GoPro have seen surges driven by social media and coordinated buying on platforms like Reddit. These stocks often have high short interest ratios and elevated days-to-cover metrics, making them prime candidates for short squeezes.
- Market Dynamics: High short interest, combined with a massive increases in trading volume, can amplify price movements.
What This Means for Investors
The surge in heavily shorted stocks highlights the risks and rewards of short selling.
While short sellers aim to profit from declining stock prices, rapid upward movements can lead to catastrophic losses, as seen previously with AMC and GameStop.
For retail investors, the allure of meme stocks and short squeezes offers opportunities for quick gains but comes with significant risks, as these stocks are often volatile and driven by sentiment rather than fundamentals.
For short sellers, the lesson is clear: betting against popular or fundamentally strong companies in a bullish market can be a costly endeavor.
For long investors, the opportunity to capitalize on short squeezes is tempting but requires careful navigation of volatile market conditions.
As always, be sure to do your own research and create a sound plan for the best execution possible.
But I’m curious to know what you think — will we see another short squeeze from AMC and GameStop again?
Leave your thoughts below.
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