Enter the number of shares shorted, current price per share, and shorted price per share into the calculator to determine the potential profit.
Short Squeeze Formula
The following formula is used to calculate the potential profit from a short squeeze.
PP = (NS * CP) - (NS * SP)
Variables:
- PP is the potential profit
- NS is the number of shares shorted
- CP is the current price per share
- SP is the shorted price per share
To calculate the potential profit from a short squeeze, multiply the number of shares shorted by the current price per share. Then, multiply the number of shares shorted by the shorted price per share. Subtract the second result from the first to get the potential profit.
What is a Short Squeeze?
A short squeeze is a rapid increase in the price of a stock primarily due to technical factors in the market rather than underlying fundamentals. It occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses. Their scramble to buy only adds to the upward pressure on the stock’s price.
How to Calculate Short Squeeze?
The following steps outline how to calculate the Short Squeeze using the given formula:
- First, determine the number of shares shorted (NS).
- Next, determine the current price per share (CP).
- Next, determine the shorted price per share (SP).
- Next, insert the values into the formula: PP = (NS * CP) – (NS * SP).
- Finally, calculate the Short Squeeze potential profit (PP).
Example Problem:
Use the following variables as an example problem to test your knowledge:
Number of shares shorted (NS) = 100
Current price per share (CP) = $10
Shorted price per share (SP) = $8
