WINDERMERE, Fla. ( Stockpickr) -- One way to make a lot of money in a very short time frame is to take advantage of a stock that experiences a large earnings-related short squeeze.
Short-sellers hate being caught short when a company produces earnings that please Wall Street bulls. When this happen, we often see gigantic short squeezes develop as the bears quickly throw in the towel to cover their positions and avoid even bigger potential losses. Even the best short-sellers know that it's never a good idea to stay short once a big short-covering rally materializes.
This is precisely why I search the market for heavily shorted stocks that are about to report earnings. You only need to find a couple of these candidates in a year to help enhance your portfolio returns -- the gains become so outsized in such a short timeframe that your profits add up quickly.
That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates.Related: 5 Rocket Stocks for June Gains First, don't ever bet any amounts of money that will cause you to lose sleep at night. Keep your bets reasonable and only use risk capital, or capital you have designated for speculating with. Also, cut your losses fast when you're wrong, and don't be afraid to take the other side of the trade if things don't set up right. The goal is to capture as much volatility as you can in a very short timeframe. Here's a look at a number of stocks that could experience big short squeezes when they report earnings this week.