Trading short squeezes can be fun and the upside potential is huge. A short squeeze occurs when a poorly performing stock builds up a large percentage of traders holding the stock short. When short sellers expect stock to keep falling, they sell the stock by borrowing it from their broker, and then buy it back later for a cheaper price. A squeeze is triggered when the stock suddenly starts to rally and these short sellers have to buy back early to cover losses, which squeezes (increases) demand for the stock and can accelerate the stock’s rise in price over the near term.
Traders can make a killing if they go long a short squeeze, but keep in mind that these stocks are held short for a reason. Keep your positions small and make sure you understand the risks of trading against the trend before you enter a trade like this.
Here are four picks we are watching for potential moves in the very near term.
NuVasive, Inc. (NASDAQ: NUVA) — up 2.66% today
Skechers USA (NYSE: SKX) — up 7.24% this week
Cree, Inc. (NASDAQ: CREE) — up 4.1% this week
China-Biotics Inc. (NASDAQ: CHBT) — up 2.27% today
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