However, just because a hedge fund manager is among the brightest on Wall Street, doesn't mean he or she always get it right. This is especially true during wild short-term swings, as demonstrated in Tesla's recent trading sessions. However, a short-seller's mistake doesn't necessarily equate a terrific buy for an investor. If you're quick on the trigger or willing to accept gigantic volatility, you can profit from short squeezes. Otherwise, more often than not they become money losers for short sellers and investors alike. Short sellers buy to cover to lock in gains or stop losses, and late to the show momentum buyers can wind up buying at the top of the move. Look at the volume of the 30-minute bars in Tesla and you can see that the majority of volume for Thursday and Friday occurred during spikes followed by weakness. Another great example of a recent short squeeze is First Solar ( FSLR).
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 @RobertWeinsteinThis article was written by an independent contributor, separate from TheStreet's regular news coverage.