A squeeze can be of great benefit to those traders who hold so called long-positions. For instance, let’s say you are looking at a flawed and poor performing company that underperforms, lacks funding, has inadequate management, and is heavily-shorted.
Now imagine the company publishes a positive press release and its share-price rises significantly to more than $120 apiece within just a few days. In this position, you are highly likely to profit from short sellers who are betting against the stock because the company.
When the price of the stock soars, many short sellers will start to exit their position and buy shares to cover. It is at this particular time that you could profit from the actions of these traders.
Bottom Line
Traders can make huge profits by taking advantage of the short squeezes.
If you are looking to benefit from squeezes, you need to know how to trade them correctly.
No one knows when a short squeeze is going to happen but by keeping track of heavily shorted stocks you can be alerted when one is starting to take off.
Then you can trade it like a momentum stock but make sure to start small because the stock will be extremely volatile.