Short Interest

Short interest represents the total number of shares that have been sold short but not yet covered or closed out. This metric indicates the level of bearish sentiment toward a stock and reveals potential future buying pressure when short sellers must eventually repurchase shares.

Key short interest metrics:

Short Interest Ratio (Days to Cover):

Short Ratio = Shares Short / Average Daily Volume

Shows how many days of normal trading volume would be needed for all short sellers to cover their positions. A ratio above 10 days is considered high and indicates significant short positioning.

Short Percentage of Float:

Short % of Float = Shares Short / Float

Percentage of tradeable shares that are sold short. Above 20% is considered elevated; above 40% is extremely high.

Short Percentage of Shares Outstanding:

Short % = Shares Short / Total Shares Outstanding

A broader measure that includes all shares, not just the tradeable float.

Why short interest matters:

• Sentiment indicator: High short interest reflects bearish views from sophisticated investors
• Contrarian signal: Extremely high short interest can indicate crowded negative positioning
• Future buying pressure: Shorts must eventually buy to close positions
• Volatility driver: High short interest increases potential for dramatic price moves

High short interest can indicate:

• Fundamental concerns: Bearish sentiment about the company's business prospects
• Accounting skepticism: Suspicion of aggressive or fraudulent financial reporting
• Overvaluation beliefs: View that the stock price exceeds intrinsic value
• Hedge activity: Institutional hedging that may not reflect directional views

Short squeeze dynamics:

• Trigger event: Positive news or buying pressure forces prices higher
• Forced covering: Rising prices create losses, triggering margin calls
• Feedback loop: Short covering accelerates the price increase
• Extreme moves: Stocks with high short interest can surge dramatically

Analysing short interest changes:

• Rising short interest: Growing bearish sentiment; potential catalyst for decline or squeeze
• Falling short interest: Shorts covering; may signal improving outlook or exhausted selling
• Stable high levels: Persistent bearish view; thesis not yet proven wrong

Short interest data is reported bi-monthly by exchanges and available through financial data providers. While high short interest often precedes stock declines, it can also create opportunities for patient investors who disagree with the bearish consensus.