Everyone loves a short squeeze -- well everyone except short sellers. More than one neck snapped during the last few trading days in Tesla as America's newest automaker burned rubber from $56 to an intraday top of $87 a share in under a week. What makes Tesla especially intriguing is the massive short interest at almost 50% of the float. You just can't reach a short interest level that high in a multi-billion-dollar company unless the brightest on Wall Street think a given stock is overpriced and will soon depreciate considerably.
In early April, First Solar's shares spiked higher from a short squeeze. Looking at the 30-minute bars on the chart, it becomes clear that chasing the stock only works if you're exceptionally fast at exiting or if you're lucky and the stock has follow-through you hold through retracements. The buyers who waited until the next day to buy First Solar saved over $2 a share. If you want to buy Tesla as an investment, make certain you're buying on a dip. Consider selling a relative number of put options to collect on the high volatility, too. Don't let the price action enthusiasm to overcome sound logic. Otherwise, you may have the keys to an investment that has lost before it crosses the starting line. At the time of publication the author had no position in any of the stocks mentioned. Follow @RobertWeinstein This article was written by an independent contributor, separate from TheStreet's regular news coverage.