In many of my posts I reference the short interest in a given stock -- a factor I consider to be pretty important, especially if it's a trade that I'm looking into.

Basically, the short interest in a stock is exactly what it sounds like -- the amount of "short" positions (bets against a stock) versus the float of a stock. For those who are unfamiliar with shorting, traders borrow shares to sell, that they don't already own, to effectively create a negative bet on the stock's price. Essentially, it's the exact opposite of a long position, but one can't always establish a short position -- sometimes a borrow can't be found.

Moving along on the same opposite of long theme, to end (cover) a short position, the trader must buy the stock, instead of the selling necessary to close a long position.

So why does this matter? Because if a stock has a large short position, there's a good possibility the stock could move higher as a result of shorts closing their positions. That's why I tend to say "if this stock has good news, it will fly" and why I told people interested in betting against Under Armour's (NYSE: UA) long term potential that I thought hedging this quarter is a good idea in case its stock sees a short squeeze.

So if you think a stock is going to have a solid quarter, strong comp growth, etc., and it has a large short position, the stock will likely make a big move if you are in fact correct.

A perfect example of this was the recent move in Intuitive Surgical (NASDAQ: ISRG). The company reported an 84% jump in quarterly earnings on Thursday night. Its earnings per share came in at 79 cents while analysts were expecting 67 cents per share. In addition, the company said it expects to grow the top-line this year by 45-50% rather than the 40% previously expected. Intuitive Surgical is also a great example of Jim Cramer's UPOD companies -- under promise, over deliver. It consistently makes guidance estimates that are able to impress the street but also very beatable.

The stock, like many other rapidly growing companies, had a huge short position, probably because of its incredibly high valuation. While the bulls will argue that the company is growing enough to justify the valuation, or that the valuation on these momentum names doesn't matter, the shorts clearly believed the valuation on this stock did matter. Turns out the bears were wrong, and when the company blew out earnings it further proved to Wall Street that it justified its hefty multiples with consistent and ever-powerful growth.

The stock closed after-hours trading up 12% that day, to about $178 per share. Much of this buying activity was probably shorts closing their positions.

Even more importantly, at the open on Friday the stock had tremendous buying activity and quickly bounced about 12 more points -- impressive might for a stock that moved up 12% just the night before and had already opened higher. As you can see from the chart on the right, the stock's buying activity quickly slowed down after the open -- a sign that the shorts were done with their position-closing.

How do I explain this move? Two words: short squeeze. There are two different reasons short squeezes occur: Shorts can either be forced ("squeezed") out of their short position by their broker or the shorts quickly exit their positions because they expect further momentum in shares in the short term.

This is just one example of a stock moving very quickly and powerfully, mostly attributable to the "short squeeze" in my opinion.