Jul. 13 at 12:52 PM
$MVST @joe_king9 maybe: When a stock is added to major indexes (e.g. Russell 2000), it can trigger temporary buying pressure from index funds and ETFs that are forced to include it. While this may seem positive, it also creates a predictable opportunity for institutional traders:
1. Front-running: Hedge funds often buy the stock before the inclusion, then sell it once index funds are done buying.
2. Short-selling setup: After inclusion, with demand exhausted, some traders open large short positions, betting the stock will drop — especially if they believe it’s overvalued.
3. Bearish reports: Sometimes negative reports are published right after the inclusion to accelerate the price drop and justify the shorts.
4. Result: Once the inclusion is done, the artificial demand disappears, the price collapses, and short interest spikes.
