Booyah Breakdown: Mad Mysteries

As cool as that is, don't dismiss the fact that you now owe your broker 1,000 shares of Mister Softee.

Now let's presume the stock tanks, as you brilliantly predicted, and falls to $19. You decide that now is a great time to "cover your short position" -- that means you're going to pay back your broker. So you buy 1,000 shares for $19,000. You return the 1000 shares to your broker and keep the $10,000 difference ($29,000 less $19,000).

Yippee!

Ah, but here's the rub. What if the stock doesn't fall? What if the Zune actually takes off, and the stock jumps?

Well, then you're toast.

Let's say the stock jumps to $37. Now you'll have to spend $37,000 to get your broker's shares back. That means an additional $8,000 must come out of your own pocket to cover your short position.

So while there is money to be made shorting stocks, it's a gamble.

What is happening when Jim says there is a short squeeze? -- T.W.

Cramer is basically talking about supply and demand. When a squeeze occurs, there's a really big demand for a stock and not enough shares to go around. So the price of the stock gets pushed up.

That's actually what happened to TMX Elmo.

The new Tickle Me Elmo Extreme (which laughs hysterically, drops to the floor and convulses) was launched in September by Fisher-Price, a division of Mattel (MAT Quote), for $39.99.