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. 

What Makes A Stock Heavily Shorted?

The primary reason a stock becomes heavily shorted is that a large number of experienced traders and institutional investors believe the company is fundamentally overvalued and that its price will fall. 

The short sellers 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.

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, accelerating the upward move.

The Mechanics Of A Short Squeeze

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