Does Physical Settlement Increase the Risk of a "Short Squeeze" in the Spot Market? ▴ Learn

Does Physical Settlement Increase the Risk of a “Short Squeeze” in the Spot Market?

Yes, physical settlement can increase the risk of a short squeeze, especially in markets with limited float or supply. A short squeeze occurs if a large number of short futures contracts expire and the short sellers are forced to buy the underlying asset in the spot market to deliver it.

This sudden, concentrated demand for the spot asset can drive the price up sharply, squeezing the short positions. Cash settlement avoids this direct spot market pressure.

What Is the Difference between a Gamma Squeeze and a Short Squeeze, and How Do They Interact?

How Do Rebalancing Strategies for Concentrated Liquidity Positions Differ from Those for Traditional Liquidity Pools?

How Can a High IV Create a Short Squeeze in the Underlying Asset?

Define the Term ‘Short Squeeze’ and How It Can Impact Options Writers