A rapid increase in a stock's price caused by short sellers being forced to buy shares to cover their positions, further driving prices higher in a feedback loop.
A short squeeze occurs when a heavily shorted stock begins to rise, triggering margin calls and stop-loss orders among short sellers. As they buy to cover their positions, the buying pressure pushes the price even higher, forcing more short sellers to cover. The GameStop short squeeze of January 2021 saw the stock rise from around $20 to nearly $500 in two weeks, inflicting billions in losses on short sellers. Stocks with high short interest (above 20% of float), low float (fewer shares available), and a catalyst (positive news or coordinated buying) are most susceptible to short squeezes.