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

**Published:** 2025-12-05
**Author:** Greeks.live
**Categories:** Path

---

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

High Implied Volatility (IV) indicates high uncertainty and a large expected price move, which increases option premiums. If a trader is short the underlying asset (betting on a fall) and simultaneously short put options (selling protection), a sudden upward price move can trigger a short squeeze.

As the underlying price rises, the short puts become worthless, but the short position on the underlying incurs massive losses. This forces the short seller to cover their position by buying the asset, driving the price up further.

- [Who Are the Typical Buyers and Sellers of CDS?](https://learn.greeks.live/path/who-are-the-typical-buyers-and-sellers-of-cds/)

- [What Is the Term for a Short Position That Is Forced to Close Due to a Rapid Price Increase?](https://learn.greeks.live/path/what-is-the-term-for-a-short-position-that-is-forced-to-close-due-to-a-rapid-price-increase/)

- [How Does a Sudden News Event Typically Affect the Implied Volatility of a Derivative?](https://learn.greeks.live/path/how-does-a-sudden-news-event-typically-affect-the-implied-volatility-of-a-derivative/)

- [What Is the Implication of a Positive (Right-Skewed) Volatility?](https://learn.greeks.live/path/what-is-the-implication-of-a-positive-right-skewed-volatility/)

- [Does High Volatility Favor Option Buyers or Option Sellers?](https://learn.greeks.live/path/does-high-volatility-favor-option-buyers-or-option-sellers/)

- [What Is a “Gamma Squeeze” and Is It Relevant in a Death Spiral?](https://learn.greeks.live/path/what-is-a-gamma-squeeze-and-is-it-relevant-in-a-death-spiral/)

- [What Is a ‘Short Squeeze’ and How Can Funding Rates Contribute to It?](https://learn.greeks.live/path/what-is-a-short-squeeze-and-how-can-funding-rates-contribute-to-it/)

- [What Are the Mechanics of a “Margin Squeeze” in Crypto Futures?](https://learn.greeks.live/path/what-are-the-mechanics-of-a-margin-squeeze-in-crypto-futures/)

## Glossar

### [Implied Volatility](https://learn.greeks.live/area/implied-volatility/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.

### [High Open Interest](https://learn.greeks.live/area/high-open-interest/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Indicator ⎊ High Open Interest serves as a critical quantitative indicator of substantial market participation and the overall depth of capital committed to a specific cryptocurrency derivative contract.

### [Short Squeeze](https://learn.greeks.live/area/short-squeeze/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Trigger ⎊ A short squeeze emerges when a heavily shorted asset experiences a rapid price increase, compelling short sellers to cover their positions to limit losses.

### [Short the Underlying](https://learn.greeks.live/area/short-the-underlying/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Action ⎊ Shorting the underlying is the execution of a sell order for the spot asset, creating a negative exposure to its price movement.

### [Upward Price Move](https://learn.greeks.live/area/upward-price-move/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Indicator ⎊ An upward price move signifies an increase in the market valuation of an underlying asset, often signaled by rising trading volumes, positive fundamental news, or bullish technical analysis patterns.

## Discover More

### [How Does Spoofing Create a False Impression of Market Demand or Supply?](https://learn.greeks.live/path/how-does-spoofing-create-a-false-impression-of-market-demand-or-supply/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Spoofing Create a False Impression of Market Demand or Supply?](https://learn.greeks.live/wp-content/uploads/2025/10/High-Fidelity-Digital-Asset-Volatility-Surface-Modeling-for-DeFi-Option-Pricing-Mechanisms.webp)

Spoofing uses large, fake orders to trick traders into thinking there is strong buy or sell pressure, which the spoofer then exploits.

### [How Can a Sudden Drop in Trading Volume Lead to a Short-Term 'Liquidity Squeeze' in Derivatives?](https://learn.greeks.live/path/how-can-a-sudden-drop-in-trading-volume-lead-to-a-short-term-liquidity-squeeze-in-derivatives/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Can a Sudden Drop in Trading Volume Lead to a Short-Term 'Liquidity Squeeze' in Derivatives?](https://learn.greeks.live/wp-content/uploads/2025/10/Metallic-Instrument-Precision-Balancing-Crystalline-Sphere-Over-DeFi-Protocol-Interfaces.webp)

A drop in volume reduces market depth, forcing large settlement trades to execute at worse prices, creating a short-term liquidity squeeze.

### [How Can a Short Straddle Be "Converted" into a Short Strangle to Manage Risk?](https://learn.greeks.live/path/how-can-a-short-straddle-be-converted-into-a-short-strangle-to-manage-risk/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Can a Short Straddle Be "Converted" into a Short Strangle to Manage Risk?](https://learn.greeks.live/wp-content/uploads/2025/10/Symmetric-Quadrant-Liquidity-Pools-Visualizing-Decoupled-Exchange-Settlement-Mechanisms.webp)

The ATM options are closed and OTM options are sold, which widens the break-even points and reduces the risk of being breached.

### [How Does the Funding Rate Create an Arbitrage Opportunity for Market Participants?](https://learn.greeks.live/path/how-does-the-funding-rate-create-an-arbitrage-opportunity-for-market-participants/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Funding Rate Create an Arbitrage Opportunity for Market Participants?](https://learn.greeks.live/wp-content/uploads/2025/10/Symmetrical-Bifurcation-of-Digital-Asset-Settlement-Mechanism-Crosshairs-in-Decoupled-Volatility-Surface-Mapping.webp)

A high funding rate allows arbitrageurs to lock in profit by simultaneously taking opposing positions in the spot and swap markets.

### [How Can a Combination of a Call and a Put Option Be Used to Create a 'Straddle' Strategy?](https://learn.greeks.live/path/how-can-a-combination-of-a-call-and-a-put-option-be-used-to-create-a-straddle-strategy/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Can a Combination of a Call and a Put Option Be Used to Create a 'Straddle' Strategy?](https://learn.greeks.live/wp-content/uploads/2025/10/Calibration-Disc-Mechanism-Under-Low-Light-Representing-Digital-Asset-Volatility-Surface-Mapping.webp)

A straddle combines a call and a put with the same strike and expiration to profit from high (long) or low (short) volatility.

### [How Can a Trader Create a Personalized "Cognitive Bias Checklist" to Review before Making a Trade?](https://learn.greeks.live/path/how-can-a-trader-create-a-personalized-cognitive-bias-checklist-to-review-before-making-a-trade/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Can a Trader Create a Personalized "Cognitive Bias Checklist" to Review before Making a Trade?](https://learn.greeks.live/wp-content/uploads/2025/10/Submerged-Mechanism-of-Decentralized-Finance-Protocol-Settlement-Layer-Asset-Custody.webp)

Create a list of questions that challenge your trading rationale, based on your own common biases, to be answered before every trade.

### [Does a High Staking Yield Create a Structural Incentive for Arbitrageurs to Execute Reverse Cash-and-Carry Trades?](https://learn.greeks.live/path/does-a-high-staking-yield-create-a-structural-incentive-for-arbitrageurs-to-execute-reverse-cash-and-carry-trades/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Does a High Staking Yield Create a Structural Incentive for Arbitrageurs to Execute Reverse Cash-and-Carry Trades?](https://learn.greeks.live/wp-content/uploads/2025/10/Oscillating-Asset-States-Representing-Volatility-Skew-in-Decentralized-Finance-Derivative-Pricing.webp)

Yes, high yield leads to negative CoC and structural backwardation, creating ideal conditions for reverse cash-and-carry.

### [How Does Tokenization in an STO Create Liquidity Compared to Traditional Private Placements?](https://learn.greeks.live/path/how-does-tokenization-in-an-sto-create-liquidity-compared-to-traditional-private-placements/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Tokenization in an STO Create Liquidity Compared to Traditional Private Placements?](https://learn.greeks.live/wp-content/uploads/2025/10/Tokenized-Asset-Securitization-Architecture-with-Encapsulated-Settlement-Mechanism-for-DeFi-Protocols.webp)

Tokenization creates liquidity by enabling security tokens to be traded on secondary markets, unlike illiquid traditional shares.

### [What Is the Difference between a Gamma Squeeze and a Short Squeeze, and How Do They Interact?](https://learn.greeks.live/path/what-is-the-difference-between-a-gamma-squeeze-and-a-short-squeeze-and-how-do-they-interact/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Difference between a Gamma Squeeze and a Short Squeeze, and How Do They Interact?](https://learn.greeks.live/wp-content/uploads/2025/10/Biomimetic-Mechanism-Unveiling-Securitized-Token-Exposure-Versus-Hedging-Option-Gamma-Squeeze-Dynamics.webp)

A short squeeze is driven by shorts covering; a gamma squeeze by options dealers hedging. They can ignite each other.

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