MOASS

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MOASS, or the "Mother of All Short Squeezes," is a term popularised in online stock-trading communities to describe a scenario where a heavily shorted stock sees a sharp, massive increase in price due to a short squeeze. A short squeeze happens when a stock's price rises rapidly, forcing short sellers (investors who bet against the stock by borrowing and selling it) to buy shares to cover their positions, which further drives up the stock price. [1]

In the case of MOASS, it’s believed this event could trigger unprecedented gains because of high trading volumes and interest from retail investors. MOASS has become a symbol in retail trading circles, particularly with stocks like GameStop and AMC, where a high volume of individual investors hold significant shares, fuelling speculation that coordinated buying could lead to extreme price surges.

Origin and implication

The term became popular during the GameStop short squeeze GameStop (14666287269).jpg
The term became popular during the GameStop short squeeze

This phenomenon gained widespread attention during the GameStop (GME) trading frenzy that occurred in January 2021. The event was marked by a dramatic rise in GME's stock price, which was heavily shorted by institutional investors. Retail investors, particularly those organised through social media platforms like Reddit, began buying shares en masse, leading to a short squeeze that forced short sellers to cover their positions, further driving up the stock price. [2] [3] [4] [5]

The mechanics of a short squeeze involve a situation where short sellers, who profit from declining stock prices, are compelled to buy back shares to cover their positions as the stock price rises. This buying pressure can create a feedback loop, causing the stock price to increase even more sharply. In the case of GME, the short interest was reported to be over 140% of the available shares, indicating that more shares were shorted than were actually available for trading. [6] This extreme level of short selling set the stage for a classic short squeeze, as retail investors coordinated their buying efforts to push the price higher. [7] [8]

As GameStop's stock price rebounded following the short squeeze, numerous Reddit retail investors, many of whom still held GameStop shares, began to speculate about the possibility of a second, potentially larger, short squeeze happening through similar means. [9] This hypothetical event became known as "the mother of all short squeezes" (MOASS), and a community formed around this idea on various subreddits. [10] The term "Mother of All Short Squeezes" (MOASS) refers to a significant financial event characterised by a rapid increase in the price of a heavily shorted stock, driven primarily by retail investors. [2] [3]

The MOASS phenomenon is not just a singular event but represents a broader trend in market dynamics where retail investors leverage social media to influence stock prices. The GameStop case exemplified how collective action among retail investors could disrupt traditional market mechanisms and challenge institutional investors. This collective behaviour was fuelled by a sense of community and shared purpose among retail traders, often referred to as the "R/wallstreetbets" community on Reddit. The community's discussions and strategies contributed to the rapid escalation of GME's stock price, leading to significant financial losses for some hedge funds that had heavily shorted the stock. [2] [3] [4] [5]

In addition to the financial implications, the MOASS event raised questions about market regulation, the ethics of short selling, and the role of social media in modern trading. Regulatory bodies began to scrutinise the practices surrounding short selling and the potential for market manipulation. The event highlighted the vulnerabilities in the financial system and the potential for retail investors to exert influence over stock prices in ways that were previously thought to be the domain of institutional investors. [7] [8] For example, Following the GME incident, regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) began to investigate the practices surrounding short selling and the role of social media in influencing stock prices. [11] [12]

Moreover, the MOASS phenomenon has implications for future market behaviour. It serves as a case study for how collective action can lead to significant market movements, potentially paving the way for similar events in the future. The dynamics observed during the GME short squeeze may encourage other retail investors to engage in similar strategies, particularly in stocks that are heavily shorted. This could lead to increased volatility in the markets as retail investors seek to replicate the success of the GME event. [7] [8]

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In January 2021, a short squeeze of the stock of the American video game retailer GameStop and other securities took place, causing major financial consequences for certain hedge funds and large losses for short sellers. Approximately 140 percent of GameStop's public float had been sold short, and the rush to buy shares to cover those positions as the price rose caused it to rise even further. The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated. At its height, on January 28, the short squeeze caused the retailer's stock price to reach a pre-market value of over US$500 per share, nearly 30 times the $17.25 valuation at the beginning of the month. The price of many other heavily shorted securities and cryptocurrencies also increased.

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References

  1. ↑ Martins, Bernard Zambonin and Daniel (2021-10-21). "AMC Stock: MOASS Explained, Is It Going To Happen?". Meme Stock Maven. Retrieved 2024-10-28.
  2. 1 2 3 Mancini, Anna; Desiderio, Antonio; Di Clemente, Riccardo; Cimini, Giulio (2022-08-12). "Self-induced consensus of Reddit users to characterise the GameStop short squeeze". Scientific Reports. 12 (1): 13780. doi:10.1038/s41598-022-17925-2. ISSN   2045-2322. PMC   9374300 . PMID   35962174.
  3. 1 2 3 Hasso, Tim; Müller, Daniel; Pelster, Matthias; Warkulat, Sonja (March 2022). "Who participated in the GameStop frenzy? Evidence from brokerage accounts". Finance Research Letters. 45: 102140. doi:10.1016/j.frl.2021.102140.
  4. 1 2 Lucchini, Lorenzo; Aiello, Luca Maria; Alessandretti, Laura; De Francisci Morales, Gianmarco; Starnini, Michele; Baronchelli, Andrea (April 2022). "From Reddit to Wall Street: the role of committed minorities in financial collective action". Royal Society Open Science. 9 (4). doi:10.1098/rsos.211488. ISSN   2054-5703. PMC   8984357 . PMID   35425623.
  5. 1 2 Hilliard, Jimmy E.; Hilliard, Jitka (May 2023). "The GameStop short squeeze: Put–call parity and the effect of frictions before, during and after the squeeze". Journal of Futures Markets. 43 (5): 635–661. doi: 10.1002/fut.22405 . ISSN   0270-7314.
  6. ↑ Gao, Jiaqing (2022-07-13). "Analysis of the Impact on Gamestop from the Gamestop Opportunistic Episode". Journal of Education, Humanities and Social Sciences. 2: 186–192. doi: 10.54097/ehss.v2i.785 . ISSN   2771-2907.
  7. 1 2 3 Vasileiou, Evangelos (2022-10-18). "Does the short squeeze lead to market abnormality and antileverage effect? Evidence from the Gamestop case". Journal of Economic Studies. 49 (8): 1360–1373. doi:10.1108/JES-04-2021-0210. ISSN   0144-3585.
  8. 1 2 3 Klein, Tony (May 2022). "A note on GameStop, short squeezes, and autodidactic herding: An evolution in financial literacy?". Finance Research Letters. 46: 102229. doi:10.1016/j.frl.2021.102229.
  9. ↑ Fox, Matthew (Oct 11, 2022). "The meme stock community has become a cult hoping to 'erase the economy,' says a widely followed skeptic whose anti-NFT video went viral". Markets Insider. Archived from the original on January 25, 2024. Retrieved 2024-01-28.
  10. ↑ Duprey, Rich (July 10, 2022). "GameStop Finally Announced Its Stock Split. The MOASS Still Isn't Coming". Nasdaq.com. Archived from the original on January 25, 2024. Retrieved 2024-01-28.
  11. ↑ Ngonisa, Phillip; Mgxekwa, Bahle; Ndlovu, Nomusa; Ngonyama, Nomasomi; Mlambo, Courage (2023-01-14). "Bank Market Structure and SMMEs' Access to Finance: A South African Perspective". Economies. 11 (1): 30. doi: 10.3390/economies11010030 . ISSN   2227-7099.
  12. ↑ Brown, James R.; Martinsson, Gustav; Petersen, Bruce C. (August 2013). "Law, Stock Markets, and Innovation". The Journal of Finance. 68 (4): 1517–1549. doi:10.1111/jofi.12040. ISSN   0022-1082.
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