What happened

Shares of Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) spiked in early trading on Monday morning -- at one point they were up a whopping 17%. However, I don't believe you'll find any company-specific news today, which is why I'll offer an alternative explanation for the move. As of noon EST, the stock was up 6%.

So what

Ollie's is a stock that isn't on many investors' radars. However, there's a relatively large group of investors shorting the stock, and I believe this is contributing to a short squeeze. When trying to determine if a squeeze is under way, we can look at the stock's float and its trading volume. According to Yahoo Finance, 27% of the Ollie's stock's float is sold short. And according to Nasdaq, it would take 13 days for shorts to cover based on its volume. These conditions do indeed present a short-squeeze opportunity.

A businessman rides a rocket ship expelling cash exhaust over a multicolored bar chart.

Image source: Getty Images.

Short squeezes need a push to start rolling downhill. Often companies can provide it themselves by reporting good news of some kind. But Ollie's isn't providing the needed shove. As we already noted, there's no company-specific news today. Rather, I believe the catalyst is coming from those watching GameStop stock.

GameStop stock is in the middle of a short squeeze for the ages. The stock is skyrocketing again today and has returned well over 300% in just a couple of weeks. At one point, GameStop was heavily shorted with over 100% short interest, but strong holiday sales sent short sellers to cover their positions. As as result the stock has gone parabolic, and I believe many investors are looking around the market for other highly shorted stocks.

Ollie's fits the bill, although it's not as shorted as GameStop was. Nevertheless, 27% of the float is nothing to sneeze at. In the absence of news, this is the only explanation that seems adequate. And looking around the market seems to reinforce this opinion. Other highly shorted stocks are soaring today, like Beyond Meat, although they too lack news.

OLLI Chart

OLLI data by YCharts

Now what

If you're thinking about trading stocks in hopes of earning multi-bagger returns in a matter of days from short squeezes, then here's my advice: Don't! The timing of a short squeeze is hard to predict (consider that GameStop has been heavily shorted for more than a year). Furthermore, no one knows how long it will last or how high shares could spike once it starts. 

Better stick to the time-tested method of gradually enriching yourself by buying stocks in quality companies and holding for a long time. Incidentally, I believe Ollie's is one of those stocks. In the short term, I make no prediction about whether it will trade higher or lower. But the company is quickly opening many new stores and doing so profitably, which I believe will reward shareholders over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.