Short Interest and Short Ratios

Short interest is the number of shares that have been sold short and not yet bought back. Short sellers profit if a price falls, so short interest shows how many investors are betting against a stock. It also has a second side: every open short position must one day be covered by buying the shares back, so heavy short interest is also future demand. Traders follow it for both reasons.

Older technical analysis books describe several market-wide short sale ratios based on weekly NYSE reports: the total short ratio (short sales as a share of all volume), the public short ratio and the member short ratio (who was doing the shorting). Those figures relied on the exchange floor and its specialists, which electronic trading has largely replaced, and they are no longer widely followed. Today the practical measures are short interest in individual stocks and the ratios below.

How it is calculated

Short % of float = shares sold short / float shares × 100
Short ratio      = shares sold short / average daily volume     (days to cover)

In the US, brokers report short positions to FINRA twice a month, and the figures are published with a delay of about a week or more. The float is the number of shares available to trade, excluding shares held by insiders and other locked-up holdings. The short ratio, often called days to cover, estimates how many days of normal trading it would take short sellers to buy back all the shares they owe.

How to read it

• High short interest, a crowded bet. Short interest above roughly 10% to 20% of the float means many investors expect the price to fall. They are often right: heavy shorting frequently reflects real problems in the business.
• Squeeze fuel. When a heavily shorted stock rises, short sellers may rush to cover, and their buying can push the price up faster. A high short ratio makes that worse, because covering takes many days of normal volume.
• The trend of short interest. Short interest that keeps rising while the price falls confirms the bears. Short interest that falls while the price rises shows shorts covering, which can fade once the covering is done.
• Contrarian, market-wide. When short interest across the whole market reaches unusually high levels, pessimism is widespread. Like other sentiment measures, that tends to be more common near lows than near highs.

Settings and common mistakes

• Old data. Short interest is a snapshot taken days before it is published. In a fast-moving stock, positions may have changed a lot since then.
• Assuming a squeeze must come. High short interest is a condition, not a signal. Many heavily shorted stocks keep falling. Wait for price to confirm, for example a break above resistance on heavy volume.
• Comparing across data sources. Float definitions differ between providers, so the same stock can show different short percentages.
• Ignoring hedging. Some short positions hedge convertible bonds, options or ETFs rather than express a view on the company.

Screen for it on MarketInOut

Our formula language has short interest as a percent of float, short_perc, and the short ratio, short_ratio. Heavily shorted stocks trading above their 50-day average:

exch(nyse,nasdaq) and type(stock) and price > 1 and advol(21) > 1
and short_perc > 20 and short_ratio > 5 and price > sma(50)

Stocks with more than 15% of the float sold short that just made a three-month high:

exch(nyse,nasdaq) and type(stock) and price > 1 and advol(21) > 1
and short_perc > 15 and price new_high 63

Related: Support and resistance, On Balance Volume, Chart patterns.