Just a few quick questions regarding the shorting of common stock. I’m looking at a stock that currently has a short interest ratio of about 15x. (# of shorts / average daily trading volume) Now this seems quite high to me especially compared to many of the company’s direct peers. Is 15x abnormally high or is this reasonable? (Oil and Gas sector) Question #1: What is the average length of time a short position is entered into for? Is it just negotiated between you and the broker who is lending the shares? Question #2: Given the high short interest on this common stock, would it be reasonable to expect people to cover their positions if the stock dropped significantly, and thus create upward pressure? Any clarification would be appreciated, thanks.
You can keep the short open for as long as you want. Only downfall is that in a short squeeze the broker can call your shares and they will buy you in. 15 days to cover is pretty long, but that number can be fuzzy as its based on the avg daily volume for the past 30 days i believe. So if you have had light volume, the number would be higher. Shares short as a % of the float is useful, then you know how big the short position is relative to the size of the company.
#1 There is no average length - it’s however long the investor wants to keep the short position on, assuming the broker can continue to find shares to borrow. Even the if specific shares you have shorted are sold by the investor who holds them long, the broker can almost always cover your short with new borrowed shares. If they can’t cover your short, you’ll get called in and be forced to cover (and I’m forced to call the broker and let them know what a sh1tty loan desk they have). #2 You’re asking if a 15 short ratio means a stock is likely for a short squeeze? Well, 15 isn’t particularly high, although it’s higher than average. You should also look at the % of the float which is sold short; perhaps the stock just doesn’t have a lot of volume. However, playing for a short squeeze is a losers game. Shorts tend to be right more often than they’re wrong. I also often see rallies in heavily shorted stocks attributed to short squeezes, and I tend to doubt the veracity of those claims.
jos a banks. ultimate short squeeze name of all time.
jos a banks. ultimate short squeeze name of all time.
Is there a cost to short a stock? I’m assuming there has to be some kind of cost to borrow the shares for an indeterminate amount of time. Or can I just call up Joe Broker and say “Yo, homey. I want to short x, lend me some shares bro”?
The cost is that they sell the shares and make you keep the money with them earning really crappy interest while they invest the money in good stuff, like GSE paper.
Over here it’s usually called “days to cover”, which is more descriptive methinks.
JOSB is a good example. Days to cover between 8-12, but freaking 82% of the float is sold short. I’m on good terms with my broker, so I usually say “lend me some shares broheim”.
I’ve heard short interest numbers are completely inaccurate. A guy told me once that he personally had a short interest position larger than the published amount in bloomberg. Any thoughts?
short interest obviously changes from day to day, but official numbers that are posted in bloomberg are reported monthly.
TJR Wrote: ------------------------------------------------------- > I’ve heard short interest numbers are completely > inaccurate. A guy told me once that he personally > had a short interest position larger than the > published amount in bloomberg. > > Any thoughts? he could be right. it is called naked shorting and mark cuban did it on overstock. : ) - bloomberg is rarely wrong dude.
Naked shorting is where you don’t bother to borrow the stock first - you just sell it then don’t deliver at settlement time. The figures quoted by information providers are actually %MCOL (market cap on loan), which everyone takes to be because of shorting - most people don’t borrow stock just to look at it! So as daj says - there is no easy way of quantifying the amount of stock that has been shorted naked, but looking at %settlement failure is good indicator.