[nowherebeen]

> Yes, but wouldn't the dropping shorts mean increasingly people bought overvalued shares?

That's the point. When its 100% shorted and hedge funds all need to cover, they would be the ones buying these worthless stock from sellers. If say there are 5 hedge funds right now shorting 100% (20% each), you wouldn't want to be the last one shorting cause the 80% short sellers that are covering could very well bankrupt your fund. The underlying stock value doesn't matter as long as someone else is paying for it (i.e. hedge funds).

That's why business schools always say a) don't short sell and b) don't over leverage your short sell or you will get into a short squeeze. Short selling in my personal opinion is really dumb because your upside is limited, but your downside is unlimited.

I very much suspect that this will be in the textbook in the coming years as a prime example of black swan/ short squeeze.

[monopoledance]

Yeah, but the question was, what happens <100%.

[nowherebeen]

It’s already answered in the previous response.