u/TraditionPrimary6781

A Scilex short squeeze can happen because the due bill process forces short sellers into a financial trap where they must buy back Scilex stock to avoid owing a dividend they cannot easily obtain.

This creates an intense short squeeze through several mechanics:

1. Short Sellers Owe the Dividend [1, 2]
When a short seller borrows and sells a stock, they do not own it. If that stock pays a dividend, the short seller is legally required to pay that dividend out of their own pocket to the person they borrowed the stock from. Because the due bill process keeps the dividend attached to the stock all the way until June 15th, anyone who currently shorts Scilex is automatically on the hook to deliver one full share of Semnur Pharmaceuticals for every share they are shorting. [3, 4, 5, 6, 7]

2. Semnur Shares are Restricted and Illiquid
If a company pays a cash dividend, a short seller simply pays the cash amount. However, the Semnur dividend is a restricted stock distribution of a company that is not heavily traded. [8]

Short sellers cannot simply go onto the open market and easily buy millions of Semnur shares to hand over to their lenders.
Because they cannot easily source the Semnur shares to cover the due bill IOU, their financial risk is technically infinite. [9]

3. The June 15th Hard Deadline
The due bill creates a ticking clock. The absolute last day for short sellers to get out of this nightmare scenario is June 15th. To avoid being forced to deliver Semnur shares on June 16th, short sellers are rushing to close out their short positions.
To close a short position, they must buy back Scilex stock on the open market. When thousands of short sellers all try to buy back Scilex stock at the exact same time before the deadline, it triggers a classic, explosive short squeeze.

4. Forced Liquidation by Brokers
As the June 15th deadline approaches, brokerage firms monitor the massive risk of their short-selling clients owing illiquid Semnur shares. To protect themselves, brokers will often issue margin calls or trigger forced buy-ins. This means the brokers will automatically buy back Scilex shares on behalf of the short sellers at whatever the current market price is, fueling the upward price spiral. [10, 11, 12]
Would you like to look at the estimated short float percentage for Scilex to see how many shares still need to cover, or check the historical volatility of similar due-bill squeezes?

[1] https://www.deskera.com
[2] https://www.marketbeat.com
[3] https://www.chase.com
[4] https://blog.elearnmarkets.com
[5] https://www.bajajbroking.in
[6] https://www.dbrownconsulting.net
[7] https://finance.yahoo.com
[8] https://onlinelibrary.wiley.com
[9] https://www.mondaq.com
[10] https://j2t.com
[11] https://www.tradingsim.com
[12] https://www.marketbeat.com