what is short covering and why short covering increase share prices?
covering basically means doing the opposite trade to close the position. So Short covering means buying the underlying to close the position. And when most people try to buy the underlying constantly the prices will increase unless there are equal or more number of short sellers to nullify the effect.
Short covering is buying back borrowed securities in order to close an open short position. It refers to the purchase of the exact same security that was initially sold short, since the short-sale process involved borrowing the security and selling it in the market. For example, assume you sold short 100 shares of XYZ at $20 per share, based on your view that the shares were headed lower. When XYZ declines to $15, you buy back 100 shares of XYZ in the market to cover your short position (and pocket a gross profit of $500 from your short trade). This process is known as short covering.
Also known as “buy to cover.”
A short position will be profitable if it is covered at a lower price than the stock was sold short and vice versa if the stock price has moved higher. When there is a great deal of short covering occurring in a stock, it may be result in a “short squeeze,”
wherein short sellers are forced to liquidate their positions at progressively higher prices as the stock moves up rapidly.