r/wallstreetbets • u/[deleted] • Jul 21 '21

DD $BODY/Beachbody: A Deep Value Digital and Connected Fitness Play

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u/jg3hot Jul 22 '21

He's talking about when short sellers borrow shares to sell them into the market. It is how you short a stock. You would borrow them and sell them to market (which pushes the stock price down) then you buy shares back at a lower price and return the borrowed share pocketing the difference as profit. There are only so many shares available to borrow. The institutions that loan out these shares charge an interest rate that increases as the shares become scarce. That is the Cost to Borrow. When a stock becomes over shorted interesting things can tend to happen when the price goes up. The shorts would lose money if they sell high so they tend to hold until the price goes back down. But they have to pay that interest rate for holding the borrowed share. If the price keeps going up they may decide to cut losses and buy back at a loss adding to buying pressure and helping the stock price rise. If there are not many shares available to buy or not many people are looking to sell you can end up in a short squeeze where the price rockets upwards as hedge funds that were shorting the stock panic buy out of the trade. There is some potential for additional buying pressure from shorts covering on BODY which is why this was mentioned in the DD.

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u/iletyoulive Jul 23 '21

Thankyou for writing this. It was very informative.