Squeezes

Squeezes are pressure-driven moves in markets or production where constraints force rapid changes in prices, liquidity, or output. The term is used across finance, economics, and manufacturing to describe situations in which demand or supply tightens conditions abruptly.

In financial markets, a squeeze occurs when supply is limited or positions must be unwound, causing sharp price moves. The best known is the short squeeze, which happens when a heavily shorted stock rises, forcing short sellers to buy back shares to cover their losses and accelerating the rally. Squeezes can be intensified by rising borrow costs, high short interest, low trading liquidity, or concentrated ownership.

A related mechanism is the gamma squeeze, linked to options. As near-dated options expire, dealers delta-hedge by buying or selling the underlying asset, which can amplify price shifts when there is sizable open interest in calls.

Other squeezes include liquidity squeezes, where funding markets tighten and credit conditions become less available, and price squeezes that reflect simultaneous constraints on buyers and sellers, leading to outsized moves relative to fundamentals.

Outside markets, squeezes can describe shortages caused by imbalances between demand and supply, such as production bottlenecks or supply-chain disruptions that raise prices or curb output.

Notable examples in recent history include periods when highly shorted equities experienced rapid price increases as buyers and market dynamics forced rapid unwinding of bearish bets. Such events are typically characterized by elevated volatility and concerns about liquidity and market fragility.