Glossary·Written by a CPA
Short interest
The number of a company's shares that investors have borrowed and sold short, often shown as a percentage of the shares available to trade.
Short interest is the total number of shares that have been sold short and not yet bought back. Short selling basically just means borrowing shares, selling them, and hoping to buy them back later at a lower price to return them.
It's usually shown as a percentage of the float, which is the shares available for public trading, or as days to cover, which is how many days of normal trading volume it would take for all the short sellers to buy back.
For you, high short interest tells you a lot of investors are betting the price will go down. Sometimes they've spotted a real problem, and sometimes it sets up the conditions for a short squeeze. In the US, short interest is reported twice a month, so the number you see can be a couple of weeks old.
Example. As an example, say a company has 100 million shares in its float and 15 million are sold short. Short interest is 15 million divided by 100 million, which is 15%. If the stock trades 3 million shares a day, days to cover is 15 million divided by 3 million, which is 5 days.
The catch. Short interest data is delayed, so it can look very different by the time you see it.
Where I talk about it
- Short Interest and Days to Cover Ratio Explained- How to Easily Find Short Squeeze Candidates at 0:14
- Short Squeeze Explained for Beginners at 0:06
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This is education, not tax or investment advice. I'm a CPA, but I'm not your CPA. Full disclaimer.