Particular circumstances involving a security that would compel investors to trade the security based on the special situation, rather than the underlying fundamentals of the security or some other investment rationale. An investment made due to a special situation is typically an attempt to profit from a change in valuation as a result of the special situation, and is generally not a long-term investment.
Taobiz explains Special Situation
A good example of special situation that would prompt investors' attention would be a large public company spinning off one of its smaller business units into its own public company. If the market deems the soon-to-be-spun-off company to have a higher valuation in its present form than it will after the spinoff, an investor might buy shares in the larger company before the spinoff in an attempt to realize a quick price increase.
There are many other circumstances that could be referred to as special situation investment opportunities such as tender offers, mergers and acquisitions, and bankruptcy proceedings.