Short Interest Formula & How to Interpret the Data

September 30, 2008 by admin

Stocks

What is Short Interest

Stocks on the major exchanges can be sold short by traders who expect the security to decrease in value in the future. Over a period of time, there will be a number of traders that are carrying short positions in the stock. Traders have found that when there are a large number of shorts in a security, it often precedes a short squeeze as a result of the imbalance of supply and demand.

Short Interest Formula

The short interest can be calculated by taking the number of shares short divided by the total number of stocks in float.
Short Interest Formula

Interpreting Short Interest

Interepreting the short interest on a security is not as simple as saying, "The short interest is high, let me buy the stock.". Each stock has different thresholds of what constitutes a high short interest level. Traders will have to use short interest, news, fundamental analysis, and the days to cover formula. This process is very subjective and if interepreted incorrectly, could be a recipe for disaster. Traders should wait for a pickup in price and volume before attempting to jump on board a short squeeze. Remember, short interest data is released bi-weekly, so knowing how many shares were short on Monday, could be faulty data by time Friday rolls around.

Where to Find Short Interest Data

The three major exchanges (AMEX, NASDAQ, and NYSE) release their short interest data on a bi-weekly schedule. Traders can find the short interest for securities on these exchanges, by visiting the following link: http://www.shortinterestsite.com/short-interest-data.html.

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