Short selling is a hotly debated topic among investors, especially after a strong bull market when valuations start looking a little stretched. Some investors have no problem with borrowing shares to sell, hoping to make money as prices fall. Others see short sellers as manipulators — or worse.

One thing is certain: Short sellers can sometimes be their own worst enemies and may give you the opportunity to make fast money with a risk-reduced strategy.

#-ad_banner-#You see, short sellers eventually have to buy back the shares they borrowed to close out their position. They also may have to pay a fee to borrow and do not earn interest on the proceeds from the short sale. Worse yet, they are responsible for any dividends paid on the shares while they are short.

Unless shares have downward momentum, short sellers start to see their investment falling further into the red. If shares start rising too much, shorts may give up the gamble and start buying back their positions.

You can take advantage of this scenario with a covered call strategy that lowers your risk while still offering strong returns.

Shorts Losing Their Patience With GameStop

Short sellers had a field day with video game retailer GameStop (NYSE: GME) in 2012, when shares fell roughly 35% in the first eight months of the year. Digital games were starting to take market share, and shorts were betting the company wouldn’t last.

Then the rebound came, and shares surged 275% through November of last year, sending shorts rushing to the exits. The shares have given back some of those gains, off about 26% from their highs, and short sellers have rushed in again to the tune of 30.6 million shares borrowed. That is 27.5% of the shares available for trading, and that makes this company one of the most heavily shorted stocks in the S&P 500.

But I think the shorts are about to get burned again.

GME jumped 6% Friday when the company reported second-quarter earnings more than doubled year over year to $24.6 million, or $0.22 a share, beating analyst estimates by 22%. The recent release of the new PlayStation 4 and Xbox One are driving demand for new games with better graphics and added features.

The company also forecast a profit of $0.58 to $0.64 per share in the third quarter versus expectations for $0.58, and reaffirmed its full-year forecast. New titles from popular franchises like “Call of Duty” and “Madden NFL” should help boost sales through the rest of the year.

Technicals Reinforce Near-Term Strength

In addition to the positive fundamentals, the stock’s technicals make the case for more upside in the short term.

Shorter-term moving averages are all pointing to upward momentum, with the 5-day exponential moving average (EMA) above the 15-day, and both above the 50-day.

While shares have pulled back slightly following the post-earning’s rally, momentum is still clearly favorable. The Relative Strength Index (RSI) came off oversold conditions earlier this month, and a reading of 55 on the 14-day RSI is still well below the overbought 70 level.

Short sellers are going to be watching these technical signals and may look to buy back their borrowed shares if momentum remains bullish. Shares go ex-dividend on Friday, Aug. 29, so there may be a wave of short sellers closing out their position over the next couple of days to avoid paying the dividend on borrowed shares.

I am not ready to give the all-clear on GME over the long term. According to NPD Group, sales of physical games dropped 11% in 2013. This was better than the 21% decline seen the prior year, but it is clear digital games are threatening the brick-and-mortar industry.

GME Covered Call Strategy

A covered call strategy is perfect for this kind of short-term upside story. If GME trades higher or even sideways, short sellers may start closing out their positions. As they buy back their borrowed shares, this increases demand for the shares and helps to push the price higher.

The October options expire on the 18th, ahead of third-quarter earnings in November and well ahead of any potential pessimism from the holiday shopping season. With the company’s blowout second-quarter report and generally good economic data from consumers, there are no real catalysts to send the shares lower over the next couple of months.

With GME trading near $42.75 at the time of this writing, we can buy 100 shares and simultaneously sell one GME Oct 43 Call, which is trading around $1.90 ($190 per contract) for a net cost of $40.85 per share. This offers us 4.4% downside protection from current levels.

If the shares trade above the $43 strike price by expiration, they will be sold for that price and you get to keep the $1.90 option premium plus the $0.25 per share capital appreciation for a 5.3% profit in 52 days. That works out to a 37% per-year rate of return.

I like this trade as long as you can get in for a net cost of $41.15 or less, which still offers a good amount of downside protection and gives you a 4.5% profit in less than two months if shares are called away.

If the shares do not trade above $43 at expiration, you keep the premium and the shares, earning a potential 4.4% ($1.90 option premium divided by $42.75 purchase price), or 31% annualized return.

In this case, I would be hesitant to keep the shares and sell November calls, because this would leave me exposed to third-quarter earnings, as well as any news on the holiday shopping season. The best course of action here may be to sell.

Note: Selling covered calls is like collecting “rental income” on the stocks you own. If you’re not renting out the stocks in your portfolio, you may be missing out on the easiest income around. See how you can collect $1,200 or more each month by clicking here.

This article originally appeared on ProfitableTrading.com: Why I’m Going Long On One of the Most Hated Stocks in the Market