Short interest

A short seller borrows shares, usually through a broker, sells them, and later buys the same number back to return to the lender. The position gains if the price falls in between and loses if it rises. Because a price has no ceiling, the possible loss on a short position has no fixed limit, while the gain is limited to the price falling to zero.

While the position is open the short seller pays a fee to borrow the shares and pays the lender the equivalent of any dividend the company distributes. Both costs accrue for as long as the position stays open.

Short interest is the total number of a company's shares that have been sold short and not yet bought back. It is a count of open positions at one moment, not of trading over a day.

In the United States, broker-dealers report their customers' short positions to FINRA, the industry's self-regulatory body, under its Rule 4560. FINRA consolidates the reports twice a month, for a settlement date in the middle of the month and one at the end, and publishes them about a week and a half after each date.

The company page shows the most recent consolidated figure with the settlement date it describes, under Short interest in Key statistics, along with the change since the previous report.

The raw share count is hard to compare between companies of different sizes, so short interest is usually expressed as a share of the float: the shares available to trade, which excludes shares held by insiders and other holders whose stakes are restricted or strategic.

A company with 200 million shares in its float and 10 million shares sold short has a short interest of 5% of float. The same 10 million shares would be 50% of a 20 million share float, which is why the percentage rather than the count is the figure compared across companies.

The float has to describe the same shares as the short position. Where a company has more than one share class, or trades in the US as a depositary receipt representing several ordinary shares, a float counted on a different basis produces a percentage that is wrong by the ratio between them. The site shows no percentage where a float on the listing's own basis is not available, and none for funds or preferred shares, where a float is not a meaningful denominator.

Yes, although it is rare. A share that has been borrowed and sold is bought by somebody else, whose broker can lend it again, so the same share can sit behind more than one short position. GameStop reported short interest above 100% of its float in January 2021, which is the best-known case.

A figure far above 100% is more often an error than a market event. The site does not print a percentage above 150%, because a mismatched share basis produces figures many times that.

Days to cover, also called the short interest ratio, divides short interest by the average number of shares traded each day. With 10 million shares short and 2 million shares changing hands on a typical day, it is 5 days.

It measures the short positions against the market's capacity to absorb them rather than against the company's size. A crowded position in a thinly traded stock can have a modest percentage of float and a high days to cover, and the reverse is true for a heavily traded large company.

Both inputs move. Volume rises sharply around news, which lowers days to cover without any short seller doing anything, and the average is taken over the period before the settlement date rather than the days that follow it.

Most large US companies have short interest in the low single digits of their float. Figures above about 20% are uncommon and usually involve either a small float or a specific dispute about the company's prospects or accounts.

Not every short position is a view that the price will fall. Holders of a company's convertible bonds commonly short its shares to hedge the equity component of the bond. In a merger paid in shares, arbitrage traders buy the target and short the acquirer. Market makers and option dealers short shares to hedge the positions their customers take. All of these add to short interest and none of them is a forecast.

A short squeeze is the reverse case. When the price rises, short sellers facing growing losses buy back, and their buying pushes the price higher still. A high days to cover is what makes a squeeze possible, because it means the buying back cannot be absorbed quickly. It does not make one likely, and most heavily shorted companies are never squeezed.

The two are often confused. Short volume is a daily count of trades that were short sales, published separately. It is routinely a large fraction of a day's trading, because market makers sell short as an ordinary part of filling buy orders and close those positions within the day.

Short volume therefore says little about how many shares are held short. Short interest, the twice-monthly count of positions still open, is the figure that answers that question, and it is the one the company pages and the screener use.

It is not current. The figure describes the settlement date and is published about a week and a half later, so by the time it is read the positions are two to four weeks old and may have been closed.

It does not show who is short or why. FINRA publishes a total for each security, with no breakdown by holder.

It does not capture every bearish position. Put options, swaps and other derivatives can carry the same exposure without a share being borrowed, and none of them appears in short interest. The figure therefore understates the total positioned against a company, by an amount nobody outside the counterparties knows.

Reading the figure as today's. It is dated, and the date is the settlement date, not the day it was published.

Treating every short position as a prediction, when convertible, merger and market-making hedges make up part of the total.

Comparing raw share counts between companies instead of the percentage of float.

Expecting a squeeze because short interest is high. A squeeze needs a rising price to start it, and short interest describes positioning, not the next move.