How to Make Money Buying Short Squeeze Stocks

One technique that many traders use is buying short squeeze stocks. So what is a short squeeze stock and what is a short squeeze? First, for those of you who aren't aware, I will cover shorting stocks real briefly.

When you short a stock, it means that you hope to make money from a drop in the price of a stock. Technically what happens is that you borrow shares of a stock, sell those shares, then buy back those shares at a hopefully lower price so that those shares can be returned. Of course, this all happens electronically, you don't actually see all the borrowing and returning of shares; it just shows up on your computer screen as a negative number of shares.

Short sellers can make a lot of money, but sometimes when the stock moves against them, the stock starts to move up, and the short sellers scramble to buy shares to cover their position. This is called a  short squeeze. When a short squeeze takes place, it can cause the stock to rise fast and hard. Plus, any bit of good news can trigger the short squeeze.

So other traders take advantage of this situation buy looking for stocks that may have a potential short squeeze. Here is what they look for:

• Short Percentage of Float ~ The float is the number of freely tradable shares and the short percentage is the number of shares held short divided by the float. Amounts over 10% to 20% are considered high, and potential short squeeze plays. 
• Short Ratio / Days to Cover / Short Interest Ratio -This is probably the most important metric when looking for short squeeze trades, no matter what you call it. This is the number of days it would take the short sellers to cover their position based on the average daily volume of shares traded. This is a significant ratio as it shows how "stuck" the short sellers are when they want to buy in their shares without driving up the price too much. Unfortunately for the shortsellers, the longer the number of days to cover, the bigger and longer the squeeze.
• Short Percentage Increase ~ This is the percentage increase in in the number of short sellers from the previous month.

Now, what stocks are looking good for a short squeeze play? Let's look at Jakks Pacific (JAKK), the toy company, as an example. Almost 70% of the stock's float is held short. That's a huge amount.

In addition, the stock has a short ratio of 19.2, which means it would take almost 20 days for the short sellers to cover their positions, based on the average daily volume.

Earnings for the latest reported quarter jumped 16% on a revenue rise of 12.4%. The company will be reporting the earnings again sometime between February 24 to March 2. At 6.46 per share, the stock is already down by over 43% from from its high over the last twelve months, when it traded at 9.16 a share back in April.

It will be interesting to see how the holiday sales figures and earnings were during the fourth quarter. If you are looking for other stock ideas, check out the stock lists at WallStreetNewsNetwork.com.

Disclosure: Author didn't own any of the above at the time the article was written.

By Stockerblog.com

Taylor Swift Stock Index Outperforms the Stock Market

Taylor Swift is the famous country singer, winner of 40 awards, and made more famous by the incident with Kanye West at the 2009 MTV Video Music Awards. But she is successful for another reason. Taylor is connected to a lot of publicly traded companies, acting as spokesperson for their products, record labels, and movie distributors. Tracking the stocks she is connected with from January of 2009, the Taylor Swift Stock Index has greatly outperformed the Dow Jones Industrial Average, rising 40% for the year versus only 29% for the Dow.



The stocks in her portfolio include:

Jakks Pacific, Inc. (JAKK) Taylor Swift Celebrity Dolls


Jones Apparel Group, Inc. (JNY) the face of L.E.I. Jeans (Life Energy Intelligence) since 2008

Vivendi SA ADR (VIVDY.PK) albums and EPs: Taylor Swift, Fearless, Beautiful Eyes, Sounds of the Season: The Taylor Swift Holiday Collection, Live from SoHo, Big Machine Records, Universal Music Group

Time Warner Inc. (TWX) starring in Valentine's Day movie, New Line Cinema

Viacom (VIAB) appeared last year on CMT Crossroads, Country Music Television

Disney (DIS) starred in Jonas Brothers: The 3-D Concert Experience

Other celebrity stock indexes you may be interested in include the Heidi Klum Stock Index, the Eva Longoria Stock Index, the Angelina Jolie Stock Index, the Jessica Alba Stock Index, the Nicole Kidman Stock Index, the Freida Pinto Stock Index, and the Supermodels Stock Indices.

Assumptions:
The Taylor Swift Index is a price-weighted index, similar to the Dow Jones Industrial Average.

Author owns DIS and TWX.

By Fred Fuld at Stockerblog.com

Photo courtesy of wikipedia. No celebrity endorsement expressed or implied.