If you are on the short side of a stock trade of a stock that is heavily shorted, it can move against you very quickly. A stock can even rise on bad news. For example, a few days ago, Whirlpool (WHR) jumped up by 2% after it reported earnings below analysts' estimates. As Jeff Macke said on CNBC's "Fast Money," "If you were short, you got lathered, rinsed and thrown in the dryer."

But there are plenty of long opportunities, too, with heavily shorted stocks. Keep your eyes out for short-squeeze opportunities, which can make you a quick profit. A short squeeze takes place when a stock's price rises on good news and the stock's short-sellers scramble to cover their bearish positions. This short-covering, in turn, can drive the price of the stock even higher.

The ratio for measuring a short-squeeze play is the short ratio, which represents the number of days it would take a stock's short-sellers to cover their positions, based on the stock's recent trading volume.

Stockpickr has reviewed the short interest on the stocks that trade on the New York Stock Exchange, and compiled a list of the top NYSE short-squeeze opportunities.

One of the most heavily shorted NYSE stocks is Pre-Paid Legal Services (PPD), a provider of legal expense plans. The stock has an amazingly high short ratio of 28.5, which means that it would take the short sellers more than 28 days to cover their positions. Pre-Paid has a price-to-earnings ratio ratio of 7, which is much better than the personal-services industry average of 13. It has a reasonable $68 million in debt, with $35 million in cash. Its operating cash flow is $64 million, and it doesn't pay a dividend.

Pre-Paid is owned by Seth Klarman's Baupost Group, a Boston-based hedge fund that has reportedly returned nearly 20% per year since inception historically. Klarman also likes Linn Energy (LINE), with a short ratio of 2.5; PDL Biopharma (PDLI), with a short ratio of 5.4; and Wellpoint (WLP), with a short ratio of 1.

Another heavily shorted Big Board stock is Ritchie Bros. Auctioneers (RBA), an auctioneer of industrial equipment including agriculture, construction and transport equipment. Their short ratio is a very high 25.2. The company will be holding its first ever six-day auction next week in Orlando, Fla. The stock has a P/E of 22, which Is fairly high compared with other auction companies' average P/E of 15. The company has $193 million in cash, which is far more than its total debt of only $465 million. Its operating cash flow of $135 million, far more than enough to cover their dividend yield of 1.9%.

Richie shows up in the portfolio of Royce & Associates, a hedge fund that utilizes a value approach to invest in smaller companies. Also in its portfolio is Lincoln Electric Holdings (LECO), with a short ratio of 8.1; Unit (UNT), with a 3.1 ratio; and Knight Capital Group (NITE), with a 2.8 ratio.

For more ideas, check out the Top NYSE Short-Squeeze Plays for February portfolio on Stockpickr.

Posted on Feb. 12, 2009