Opportunities Arising from a Sellout

Sellouts can sometimes present attractive buying opportunities. For instance, if a heavily shorted stock continues to rise, the short sellers of that stock will see steadily mounting losses to their short positions. If this situation persists long enough, many of those short sellers will likely face margin calls from their brokers.


This situation can lead to a so-called short squeeze. In this case, growing numbers of short sellers are forced to buy the shorted stock to cover their short positions. In these circumstances, opportunistic investors might profit from the sellout by buying the shorted stock prior to the short squeeze, since the forced buying from the short sellers might place additional upward pressure on the company’s stock price.

In the world of business, a sellout can also provide an opportunity to purchase assets “on sale,” or to take over a struggling firm entirely at rock-bottom prices. So-called vulture investors specifically look for such struggling firms and snatch them up when the sellout takes place.