First Solar, Inc. (FSLR), Netflix, Inc. (NFLX): One Key Metric Short Sellers Need to Keep Their Eyes On

The dangers of short selling

When compared to purchasing stocks outright, short selling carries unique risks. While a stock can only fall to $0, it can theoretically rise infinitely.

That isn’t to dismiss short selling totally — never before has a stock risen to infinity. But for those who do short sell, keeping a mindful eye on short interest is a must.

No matter how dim a company’s prospects may appear, a high short interest can lead to significant pain, particularly in the short-term. For a highly shorted company, any good news can trigger a powerful rally to the upside, as seen in shares of First Solar, Inc. (NASDAQ:FSLR) and Netflix, Inc. (NASDAQ:NFLX).

Shorts in names with high short interest should consider scaling back their positions. More adventurous traders could even consider playing a potential short squeeze from the long side. Both Coinstar and Tesla fit into this category.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Netflix and Tesla Motors . The Motley Fool owns shares of Netflix and Tesla Motors Inc (NASDAQ:TSLA).