Short interest
Short interest is the number of a stock's shares that have been sold short and not yet bought back, as reported by brokers to FINRA twice a month. Traders usually read it as a percentage of the float, the short float, and as days to cover: how many days of normal volume it would take the shorts to buy back.
Why it matters to a small-cap momentum trader
Every share sold short has to be bought back one day. When a stock with a large short interest gets news and starts to run, shorts who cover add buying to buying, and a low float leaves little stock to meet them. That is the fuel behind a short squeeze. A high short interest can also mean the shorts know something about the company, so it is a reason to look, not a reason to buy.
How it is reported
Twice a month. FINRA member firms report the short positions in their customers' accounts and their own as of two settlement dates: the 15th of the month, or the business day before if it falls on a weekend or holiday, and the last business day of the month.
The delay. Firms report by 6:00 p.m. ET on the second business day after the settlement date, and FINRA publishes the figures on the seventh business day after it. The number you read is always about a week and a half old, and describes positions held days before that.
Short interest as a percentage of float. Shares short ÷ float.
Days to cover. Shares short ÷ average daily volume.
Short volume is a different number. It counts the shares sold short in a day's trades, many of them by market makers who are flat by the close, so a high short volume does not mean a high short interest.
Short interest in Hindsight Markets
The short interest in a replay is the report FINRA had published by that day, never a later one, as a percentage of the float known at that moment. It changes the morning after FINRA publishes, twice a month.
A worked example: short float and days to cover
An illustration with round numbers, not a real stock or a real day.
The report. 2.4 million shares short. The float is 8 million shares and the stock usually trades 600,000 shares a day.
Short float. 2.4 million ÷ 8 million = 30% of the float is sold short.
Days to cover. 2.4 million ÷ 600,000 = 4 days of normal volume.
On a news day. The stock trades 12 million shares before noon. If the shorts all covered, they would need 2.4 ÷ 12 = 20% of that one morning's volume. A day like that can absorb them quickly, which is one reason squeezes on small caps are often fast and short.
Common mistakes small-cap traders make with short interest
- Treating the number as live. It was true on a settlement date more than a week ago. Shorts may have covered, or added, since.
- Confusing short volume with short interest. Daily short volume is mostly market making. It says little about how many shares are still short.
- Buying because short interest is high. A crowded short on a company that keeps selling stock can stay crowded and right. It needs a catalyst to squeeze.
- Mixing up the divisors. Short interest over shares outstanding looks much smaller than over the float. Check which one a number uses.
Common questions
- What is the difference between short interest and short float?
- Short interest is the number of shares sold short and still open. Short float is that number as a percentage of the float. A short interest of 2 million on a float of 10 million is a short float of 20%.
- What is a high short interest?
- There is no official line. Many traders call 20% of the float high and 40% or more very high. Days to cover above five or so is also read as crowded, because the shorts would take days to get out.
- How often is short interest reported?
- Twice a month. Brokers report positions as of the middle and the end of each month, and FINRA publishes the figures about seven business days after each of those dates.
- What is the short interest ratio?
- Another name for days to cover: the shares sold short divided by the stock's average daily volume. It estimates how many normal days of trading the shorts would need to buy back.
- Is high short interest bullish or bearish?
- Both. It shows many traders expect the stock to fall, which is bearish, and it is also future buying when they cover, which can drive a squeeze. The news and the float decide which wins.
How to practise it in Hindsight Markets
- Open a past trading day and run the Small Cap Low Float Top Gainers scan.
- Add the Short int % and Days to cover columns, and Short vol % to see how different the daily number is.
- Filter for 20% or more of the float sold short, one of the column's presets.
- Watch the Level 2 header on a mover: the borrow letter shows whether it is easy or hard to borrow, and SSR appears if it has fallen 10%.
- Trade it, and compare in the journal how far it ran with its short float.
Practice this on a real past day in Hindsight Markets
Replay a day when a heavily shorted small cap ran, with the short interest that had been published by then, and trade the move.