A long squeeze is a situation in which investors who hold long positions feel the need to sell into a falling market to cut their losses. This pressure to sell usually leads to a further decline in market prices. This situation is less common than the opposite short squeeze, because in a short squeeze, the traders who have taken the short contracts have a legal obligation to settle with the promised shares. A trader who is 'long' in a long squeeze may well have no such obligation, but may sell out of fear. Other investors may see the rapid decline in price as irrational and a buying opportunity (more often than a rapid rise in price seen as a shorting opportunity). However, in times of significant market turmoil, identifying a long squeeze becomes of more practical interest rather than merely a theoretical possibility. In 2008, Bear Stearns was wiped out after market rumors that the company had cash concerns. Investors started selling the scrip, resulting in a long squeeze, which triggered many other stop order losses and accelerated the decline of the company's stock.
In 2020, the oil futures market saw a long squeeze when the price of near-month futures for West Texas Intermediate oil fell below $0,[1] causing long holders to be margin-called, forcing the price lower and triggering additional margin-calls, in a manner similar to a classic short squeeze, eventually reaching a bottom of $-37.63 per barrel, before later recovering to nearly $3.
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References
- ^ Beitsch, Rebecca (2020-04-20). "Oil trades at lowest price in history after slipping into negative pricing". TheHill.com. The Hill. Retrieved 2020-07-28.