Short Interest and Days to Cover Ratio Explained- How to Easily Find Short Squeeze Candidates

0:00 There has been a lot of attention on short squeezes in 2021 given the ongoing saga with gamestop and amc stock there are many factors that can play into the success or failure of a legendary short squeeze but the two most significant factors in my personal view are going to be short interest and days to cover i have noticed that most traders only pay attention to short interest percentage but this is just one part of what makes an epic short squeeze actually happen

0:28 The short interest ratio or days to cover ratio is just as important as short interest percentage and should never be ignored whenever you're analyzing stocks for potential short squeeze candidates my name is blake and today on nine to five investing i'm going to explain the short interest percentage and days to cover metrics in addition i will show you how to find the highest probability short squeeze candidates that are trending on social media

0:55 In real time short interest is simply just the number of shares that have been borrowed or sold short and have not yet been bought back or covered for someone to actually short a stock they must actually borrow shares from an investor or a trader that owns shares of said stock and eventually they must actually buy back those shares to cover their short position this is why it could be said that a short seller is a guaranteed buyer of that stock in the future the only

1:24 Exception of course is if the shorted company actually ends up going bankrupt because then the shares are actually going to be deemed worthless short interest is usually expressed as a percentage value because you're just going to be taking the number of shares short and comparing that to the number of shares outstanding so that being said to get short interest percentage you're just simply going to take the number of shares short and divide that by the total

1:49 Outstanding shares and that is really as complicated as it gets for a short interest percentage i would say that if you are looking for a short squeeze candidate that has a high probability of actually squeezing then the rock bottom minimum short interest percentage that i would look for is about 10 now a setup with this low of a short interest percentage could particularly work if there is a high days to cover ratio which i will explain the mechanics

2:17 Behind that in just a bit and just to be clear about what i'm saying here it's not like a 10 short interest is like some sort of hard cutoff for a short squeeze candidate you could even technically have a short squeeze with a lower short interest percentage than 10 it's just that the move is not going to be as powerful or explosive to the upside in fact i would say that my ideal short squeeze candidate would have a short interest percentage of at least 20 percent

2:44 And this kind of goes without saying but the higher the short interest the higher potential for an explosive short squeeze so how do we go about finding the highest probability setups for stocks that look like they could actually have a short squeeze i recommend a website called highshort interest dot com this website basically just ranks all the stocks with the highest short interest percentages you can also use a website that tracks mentions of stocks

3:11 I like to use yolostocks.live this basically just shows me which stocks are trending on reddit ultimately you can see if there are any intersections on the list featured on each of these websites to determine if there are any viable short squeeze candidates i am suggesting this method because you can actually first find the stocks that have the highest short interest and then you could actually go and track which of these stocks have a lot of eyeballs on them

3:36 So for example i can see on highshort interest.com that ticker symbol clov is actually number six these six most shorted stock in their database and it has also been trending on wall street bets over the last 24 hours so just from two minutes of research i can already tell that clover health could actually end up being a viable short squeeze candidate in the near future it's not like these two data points are going to tell the whole story but they are certainly a great place to

4:06 Start if you're looking to build a watch list of high probability short squeeze candidates earlier in the video i told you that i would look for a minimum short interest percentage of 10 percent when looking for a high probability short squeeze candidate the reason that i can personally feel comfortable suggesting a short interest percentage that is on the lower side as a minimum for a short squeeze candidate is because there is another factor that a

4:31 Lot of people forget to pay attention to and this factor is of course something i'm going to explain in the next segment this is days to cover ratio or short interest ratio my entire inspiration for making this short squeeze tutorial video is seeing a lot of traders online only talking about short interest percentage and neglecting a factor that they should also be talking about a factor that is just as important as short interest percentage the short interest ratio or days to

5:00 Cover ratio is simply just found by taking the number of shares short of a given stock and dividing that number by the actual average daily volume of shares that are traded for that stock so what exactly does the days to cover ratio tell us the short interest ratio or days to cover ratio basically just tells us how many days it would take for all of the people that are short on that stock to actually be able to get out of their position to actually

5:29 Cover the shares that they borrowed to short that stock it is a measure of velocity that tells us how quickly these shorts that are short on a given stock could actually cover their positions given the possibility that there's some extremely positive news that comes out about the shorted company that makes everybody want to cover just to illustrate the usefulness of the days to cover metric let's pretend for a minute that toys r us is actually a publicly traded company

5:55 Still and this publicly traded company has 10 000 shares outstanding an average daily volume of just 100 shares and a short interest percentage of 10 a stock with a lower short interest percentage like this again 10 could still be a great short squeeze candidate if the average daily volume is on the lower side because this would actually give the short squeeze candidate a high days to cover ratio the days to cover ratio in this example of toys r us

6:24 Is actually going to be 10 days this number is just found by taking the 1 000 share short again that's 10 of the 10 000 shares outstanding and you're gonna take that 1 000 and divide that by the average daily volume of 100. imagine that toys r us decides they're going to be launching their own cryptocurrency which causes panic amongst the toys r us shorts because they know cryptocurrency is so hot and they panic and they all want to cover at once i'll tell you i would love to be long on toys r s stock with the set of circumstances the lack of liquidity is only going to add to the panic of the short sellers that are desperate to cover every toys r us short seller is running for the exits trying to buy back

7:09 These shares to cover their position all at once all on one day then the price is going to go parabolic of toys r us stock because there is not going to be nearly enough supply nearly enough average daily volume on that stock to be able to meet the demand for toys r us stock of the shorts that are trying to cover their short positions so this is why i believe that the days to cover ratio that short interest ratio is going to be just as important as that short interest

7:38 Percentage anyone that is anticipating a short squeeze on a given stock should definitely be looking at that stock's short interest percentage but they should also look at that days to cover ratio so they can analyze the liquidity or ideally the lack of liquidity in that short squeeze candidate i hope that this random and imaginary example of shares of toys r us helped illustrate helped explain the days to cover ratio adequately if you would like to watch a video that

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