WINDERMERE, Fla. (Stockpickr) -- One way to hurt your profit-and-loss statement is to be caught short a stock going into an earnings report when a company delivers a solid set of numbers.When this happens, and especially when it happens to a stock that's heavily shorted, the market can deliver some true pain as short-covering causes the stock to skyrocket. This scenario can create a "perfect storm" for a stock as the natural buyers combined with the short-covering spike the stock higher. This is exactly why I love to search the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these 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. Related: 5 David Tepper Stock Buys for 2011 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. First, don't ever bet the farm on one of these plays. Keep your bets reasonable and only use risk capital. 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 several stocks that could experience big short squeezes when they report earnings this week -- and one stock that could make for a profitable short.
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