Moves in heavily shorted stocks are *extreme*. Short interest factor return (in std devs) last Friday was -2.4, Monday -3.9, Tue -5.1 and yesterday **-8.8**. Overall it's a 10 standard deviation move, giving up ~3 years of return in four days
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There's nothing magical about the normal distribution that means its the only distribution that you can calculate the std deviation of. As long as you have finite second moment you can calculate a std deviation just fine.
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because if the distribution of returns isn't normally distributed it's a meaningless number. It's supposed to represent something (i.e 1 std = 68% of events, 2 = 95%, etc) but if the tails are way longer and flatter than a normal distribution the number doesn't mean anything.
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