All three companies soared on heavy volume on Thursday, with the gains likely amplified by a "short squeeze," or traders covering bets the stocks would fall to prevent further losses.

These bets have gone badly wrong in 2013, and serve as a costly illustration of what's been a trend this year - the difficulty of making successful negative bets on companies at a time when the U.S. Federal Reserve is flooding markets with cash that has helped boost the price of riskier assets like stocks.

Electric car maker Tesla Motors (>> Tesla Motors Inc) notched its biggest one-day gain ever, up 24 percent, after it reported its first-ever quarterly profit. Barnes & Noble (>> Barnes & Noble, Inc.) shares rose 24 percent on reports of a possible acquisition of some of its assets by Microsoft. And Green Mountain (>> Green Mountain Coffee Roasters Inc.) gained more than 27 percent after better-than-expected earnings, its biggest one-day gain in two years.

"People were leaning into names like Tesla or Green Mountain, but now they're just getting killed," said Frank Davis, director of sales and trading at brokerage LEK Securities in New York.

For all three of these stocks, more than 20 percent of their shares are currently being sold short. Investors who want to bet against a particular company will borrow stock from brokerages or other lenders like large institutions and then sell the stock, hoping to buy it back at a lower price later, thus profiting from the decline. Only problem is: If the stock rises the short-seller's losses can build very quickly.

Hedge Fund Research's short bias index - which measures the performance of hedge funds whose main strategy is to short stocks - is down 7.5 percent through April and has lost 15 percent in the last 12 months.

"Shorts have been a hedge against profits in the face of the enormous liquidity. It has been next to impossible to succeed on the short side," said Doug Kass, founder of hedge fund Seabreeze Partners Management in Palm Beach, Florida.

The Standard & Poor's 500 Index <.SPX> has gained 14 percent already this year, largely due to the massive stimulus from the Fed through its bond buying program. The resulting low interest rates make stocks and some other assets, such as property, a better bet than bonds and money market funds. It all means that investors are at a disadvantage from the moment they short a stock - unless the company concerned is about to announce some really bad news.

"The Fed has taken the downside out of the market, making shorting a pretty challenging game right now," said Randy Frederick, managing director of active trading at Charles Schwab in Austin, Texas.

According to Thomson Reuters data, of the 50 companies in the Russell 3000 Index with the largest percentage of shares outstanding shorted, the average gain year-to-date stands at 10.7 percent. Of those, 27 issues are up for the year - gaining an average 38.7 percent. The other 23 are, on average, down by 19.6 percent.

"When the market goes up a lot the way it has been, stocks get pulled up with it... and your accuracy has to be greater otherwise you're at a much bigger risk of being caught on the wrong side of things," Frederick said.

John Hempton, chief investment officer at Bronte Capital, a small hedge fund in Sydney, Australia, said there are many "Johnny-come-lately" players to the shorting game, and they're taking oversized positions in a limited number of stocks.

Investors at the Ira Sohn Investment Conference in New York on Wednesday levelled heavy criticism at the Fed, saying the central bank is distorting the market's true level.

The stocks that make the list of the most popular shorts are a hodge-podge of troubled retailers like J.C. Penney (>> J.C. Penney Company, Inc.) and RadioShack (>> RadioShack Corporation), and for-profit education companies.

A number of the names are smaller biotech companies like Arena Pharmaceuticals Inc (>> Arena Pharmaceuticals, Inc.), Vivus Inc (>> VIVUS, Inc.) and Dendreon Corp (>> Dendreon Corporation). Biotech names are prominent favourites among shorts because they have small revenues and a limited product pipeline, and their shares fluctuate wildly depending on approval prospects for their drugs.

Groupon Inc (>> Groupon Inc), also a popular short bet that has lost 80 percent from its trading debut in November 2011, surged 11.4 percent on Thursday, following better-than-expected results. About 6.4 percent of the stock's outstanding shares are currently being shorted.

To be sure, some of the favourites among shorts, such as Green Mountain, are rebounding after several quarters of weakness when those who bet the stock was overvalued reaped big rewards. At one point, Green Mountain shares had lost 85 percent from a peak of nearly $116 (75 pounds) a share in September 2011. They closed on Thursday at $76.04.

Tesla's surge - the stock has gained nearly 105 percent this year alone after Thursday's surge - is due to improving sales and earnings prospects for the electric car maker. Eventually, short-sellers may be correct on a company like Tesla, but the cost of staying with such a bet can be very high.

According to Markit, the annualized cost of shorting Tesla comes to 45 percent of the value of the shares borrowed at the time of lending, and short bets have been increasing since Monday as its earnings approached. This was partly a bet that all good news had already been factored into the price.

However, the company reported stronger-than-expected sales late on Wednesday, and Chief Executive Elon Musk said the potential for future growth was "probably a bit higher" than originally estimated. In late April, he needled the shorts by tweeting: "Seems to be some stormy weather over in Shortville these days."

"I would steer clear of any name that has been heavily publicized with big amounts of short interest, especially going into news like earnings. That's very dangerous," said LEK's Davis.

(Additional reporting by Chuck Mikolajczak and Jennifer Ablan in New York, and Svea-Herbst Bayliss in Las Vegas; Editing by David Gaffen, Martin Howell and Leslie Gevirtz)

By Ryan Vlastelica