Traders targeting heavily shorted stocks are looking to play one of two sides: betting on a company's downfall or hunting for a short squeeze.

Here is a breakdown of why these stocks attract so much attention and a look at the current market landscape.

LCID stock is heavily shorted. See the chart and price action here. 

Why Do Stocks Get Heavily Shorted?

Investors and traders often maintain a high level of short interest whenever a stock is overvalued.

They are betting that the company faces significant risks—such as poor earnings, a failing business model or industry headwinds—that will eventually drive the stock price down.

The Two Sides of the Trade

The Bear Case: Short sellers rely on meticulous research to identify companies they believe are ticking time bombs.

The Bull Case: On the flip side, retail traders often view high short interest as a coiled spring. If the stock price starts to rise, it can trigger a short squeeze. 

The Mechanics of a Short Squeeze

A short squeeze is a volatile feedback loop that can lead to explosive gains in a ...