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Volkswagen has always been a magnet for speculators.
Unforgettable when in 2008 the common stock of VW quasi quintupled in value within two days from nowhere.
At that time, the Wolfsburg-based company was for a short time the largest company in the world with a stock market value of 280 billion euros.
And that because hedge funds had gambled away and so drove prices up.
Soldiers of fortune are not attracted to VW because the business model is so shrouded in mystery.
Rather, it is the very own share structure that has attracted many speculators.
There are two classes of shares from Volkswagen: in addition to the little-traded ordinary shares, there are also the preference shares, which are in the Dax, for example, and which investors usually buy if they want to be part of VW.
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However, both types of shares are quoted at different price levels, and that in turn continues to attract hedge funds, so-called arbitrageurs, who make profit from price differences.
That is why there are strong price jumps at VW in the otherwise little traded ordinary shares at irregular intervals.
The Reddit Army pounces on VW
On Tuesday it was that time again.
Since the prices of the common shares shot up by 30 percent.
That was the biggest increase since historical speculation twelve years ago.
Of course, VW has recently created a good mood with positive news.
But the benefits only increased by nine percent on Tuesday.
Source: WORLD infographic
This time, the hedge funds were obviously not responsible for the VW mania with common stocks, but American small shareholders.
In the legendary Reddit investor forums, in which the shares of the video game chain GameStop had recently been cheered up again and again, VW suddenly appeared as a new object of speculation.
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Daniel Ives, the renowned Wedbush tech analyst, thinks VW is the most likely partner should the iPhone manufacturer bring an Apple car onto the market.
These rumors were already enough that the so-called Reddit Army was buying VW.
Source: WORLD infographic
The American small investors poured into the American VW shares, so-called VW ADR.
Around three million of these papers were traded on Wall Street, a good twelve times as much as on normal days.
The stupid thing is: The American ADR are linked to the common shares.
And they are extremely illiquid in this country because more than 90 percent of the voting shares are in the hands of Porsche, the state of Lower Saxony and Qatar.
Highest premium since 2008/2009
The wave of speculation caused a sharp rise in the price of common stocks, which in turn put some hedge funds into trouble.
One trade is particularly popular in the hope that the price premium of the ordinary share on the non-voting preferences will be reduced: the professionals bet on falling prices for the ordinary shares and rising prices for the preferences.
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And to do this, hedge funds borrow common stocks from fund companies or other investors and sell them on the markets in the hope of being able to sack them for less and then give them back.
These hedge funds are also called short sellers or short sellers.
According to the financial service IHS Markit, the short sales have borrowed around nine percent of the common stock that can be traded at all.
When prices suddenly went up, driven by Reddit investors, many hedge funds suddenly had to stock up on common stocks.
A short squeeze occurred.
The price gap between ordinary shares and preferred shares shot up from 20 euros to over 70 euros.
That was also the highest premium since 2008/2009.
At that time the premium reached almost 900 euros.
Even today, the episode is known as the biggest short sale trap in history.
At the time, Porsche made it public that they had secured almost all of the ordinary shares with voting rights.
Together with the state of Lower Saxony, over 90 percent of the ordinary shares were in firm hands.
Short sellers now had to stock up and drove the common shares up to 999 euros, VW quickly advanced to become the largest company in the world.