Want to see short-covering taken to the extreme? Check out what happened to Volkswagen, a German automobile manufacturer:
Volkswagen briefly became the world's biggest company by market value on Tuesday, as short sellers continued to pile into the stock on weekend news Porsche had bought up much of VW's remaining free float.
Shares in the German car maker hit an intraday high of €1,005.01, valuing the company at €296.06-billion euros ($370.4-billion) based on ordinary stock, more than that of world number one company Exxon Mobil Corp's $343-billion market value at Monday's closing price.
The shares later eased back to stand 25.4 per cent higher at €652.00 at 1103 GMT, after tripling in the previous session.
Porsche said on Sunday it held over 74 per cent of VW, prompting a panic among short sellers who had sold VW shares in the hope of buying them back at lower prices.
Here is the chart of the action:
What just happened is unbelievable. Stuff like this happens all the time but is rare for large-cap stocks. Every single European hedge fund must have had the same shorting strategy. I guess now we know why relative value arbitrage funds have done so badly. The short Volkswagen & long Porche strategy has completely backfired. Tags: commentary