Today's Short-Squeeze Plays: AVID

Concerns over the state of the economy have weighed on investor sentiment, sending many high-quality stocks down and creating potential short-squeeze trading opportunities. The short interest ratio (or simply the short ratio) is a measure of a stock's short position divided by the average daily volume. In other words, it is a measure of the number of days it would take short-sellers to cover their entire positions if the share price begins to appreciate.

A short squeeze takes place when the share price of a shorted stock appreciates, sending short-sellers scrambling to cover their bearish positions. If there is some unexpected good news, a heavily shorted stock may surge, resulting in good returns.

When I'm looking for potential short-squeeze plays, I look for certain situations. Today, I looked at companies that have a short ratio above 15 and a market cap over $250 million. You can see the rest of the Top Short-Squeezes on Stockpickr.

Avid Technology (AVID - commentary - Cramer's Take), a digital media company, has significant short interest. It has a short ratio of 15.6, with 20.69% of the float shorted.

The company has been facing pressures, with income declining and costs rising in the third quarter. In November, Avid announced a major change in strategy in response to customer feedback and its declining performance. The initiatives include user-community activities, personalized events, technical support programs and innovative product introductions through 2008.

Avid Technology is owned by Clarium Capital, a $2 billion global macro hedge fund company managed by Paypal founder Peter Thiel. The fund also owns Grant Prideco (GRP - commentary - Cramer's Take), which has a short ratio of 2; McDonald's (MCD - commentary - Cramer's Take), with a short ratio of 1.5; and Sotheby's (BID - commentary - Cramer's Take), with a 4.1 short ratio.

According to analysts polled by Thompson/First Call, the company has one strong buy rating, five hold ratings and one underperform rating. Trading below $26, the company's shares are well below their 52-week high of $38.78. However, buying the shares now may not be a good idea; I'd wait until the company has proved itself to some extent.

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At the time of publication, Raznick had no positions in the stocks mentioned, although positions may change at any time.

Jason Raznick is president of Easy Stock Alerts and has been involved with the capital markets for several years. He has worked for Merrill Lynch, Dynamis and Tricap Holdings, a joint venture with Fortress Investment Group. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Raznick appreciates your feedback; click here to send him an email.