Given that there is more shorts then actual stock. Would it mean that the shorts would be forced to take a loss and buy that stock?
I have very rudimentary knowledge of how this works, asking as I wonder how it actually works.
If they don't (let's say there's no price they'd sell at), a few things can happen:
The short-seller can sell their short position directly (transfer liability) to someone who thinks they can convince the stockholders.
The Company can issue more stock, diluting all shareholders, and sell to the short-sellers.
The short seller simply goes bankrupt, at which point liability gets settled in court (details depend on how they shorted, middle-men, etc.) - other people like brokers could get dragged into this too as they may guarantee the trade.
It seems to me that most of WSB crowd forget this kind of things.
IDK but another sane option would be that the regulator just pause trading on such stocks "until further notice" (I don't even know whether this is possible, but I guess that politicians can do whatever they agree to and pass a law or regulation)
Even if they don't, even if the funds go bust, only the early sell-offs from WSB will profit, while diamond-hands might be left with tons of $15 stocks that they paid $350 for...
Most brokerages would not allow a short position with such poor liquidity -- they would force the position to be closed to avoid taking on that kind of risk. Forced buying is exactly what is happening right now, as the price rises short sellers wind up with margin calls and are forced to buy at whatever price they can get (or they must deposit other cash or securities to offset the losses in their margin accounts). That drives the price higher and triggers more margin calls and more buying, until eventually all the shorts have been forced to close their positions. Brokerages will likely raise the margin requirements for a symbol like this to avoid a situation where a short sellers end up bankrupt with negative account values after closing the position (which means the brokerage will take a loss). Note that raising margin requirements will accelerate a short squeeze, since it creates more margin calls, but brokerages would rather get the positions closed sooner than later.
The price may shoot way up, or plunge, but this process almost always works, so there's almost always liquidity.
Yes, that's what a short squeeze is. They are losing more and more money as this goes up, and at some point they won't have more money to lose. They'll have to buy (in order to cover their short), which will further drive the price up.
So yeah, if the long holders just keep holding, it'll keep going up and those that are short will owe more and more to their lenders (and paying more and more in interest, I think). Even if they want to cover their short, there's not enough shares to go around for them to buy. This is why it's being called an "infinite squeeze". They've shorted the stock more than there are actually shares out there, so it's difficult to cover.
There's some more factors at play when you consider option contracts, I think.
People have already forgotten Optionsellers.com it seems
The real key is daily volume vs. volume shorted.
Shares outstanding - about 70M
Daily volume - about 24M
So if shorts were the only ones buying, it would take about 3 days of normal volume to unwind their positions.
But with the price going up, many others are competing with the short sellers to buy shares right now. So volume will go up and/or it will take longer to unwind.
Recently, the daily volume has gone up to 110M shares. A lot of those shares are being bought and sold more than once per day.
There's nothing magical about 100% of outstanding shares. But it's a huge problem that the shorts outstanding are so high relative to daily volume.