Short Interest – What It Is, What It Is Not (2024)

What Is Short Interest?

To understand what short interest is, we should first talk about short sales. Put simply, a short sale involves the sale of a stock an investor does not own. When an investor engages in short selling, two things can happen. If the price of the stock drops, the short seller can buy the stock at the lower price and make a profit. If the price of the stock rises, the short seller will lose money. An investor may engage in short selling for many reasons, such as to profit from a decline in the price of a stock or to hedge the risk of other positions.

To open a short position, an investor places a short sale order with their brokerage firm in a stock that the investor does not own. This is done in a margin account. Because the investor does not own the shares, the brokerage firm will look to “locate” shares prior to executing the short sale. These shares may be identified in the brokerage firm’s inventory, the margin accounts of other customers or another source. Once the trade is executed, the investor’s margin account will show the proceeds of the sale. Ultimately, the investor must obtain these securities to close the position. Until this occurs, the investor’s account will reflect a short position. To close the position, the investor can purchase the stock in the market, which they hope will be at a lower price than they sold the shares short.

“Short interest” is a snapshot of the total open short positions existing on the books and records of brokerage firms for all equity securities on a given settlement date. Short interest data is collected for all stocks—both those that are listed and traded on an exchange and those that are traded over-the-counter (OTC). FINRA and U.S. exchange rules require that brokerage firms report short interest data to FINRA on a per-security basis for all customer and proprietary firm accounts twice a month, around the middle of the month and again at the end of each month.

For stocks listed on a U.S. exchange, FINRA shares the data with the listing exchange. FINRA also publishes the short interest reports it collects from member firms for all exchange-listed and over-the-counter equity securities on its Equity Short Interest Data page free for the broader investing public.

What Short Interest Is Not

In addition to short interest data, FINRA also publishes short sale volume data. The daily short sale volume data provides aggregated volume by security for all off-exchange short sale trades. This data excludes any trading activity that is not publicly disseminated and is not consolidated with exchange data.

Some market participants mistakenly conclude that the bimonthly short interest data is understated because the Short Sale Volume Daily File reflects volume that is much larger than the positions reported as short interest. However, short interest position data does not—and is not intended to—equate to the daily short sale volume data posted on FINRA’s website.

The short interest data is just a snapshot that reflects short positions held by brokerage firms at a specific moment in time on two discrete days each month. The Short Sale Volume Daily File reflects the aggregate volume of trades within certain parameters executed as short sales on individual trade dates. Therefore, while the two data sets are related in that short sale volume activity may ultimately result in a reportable short interest position, they are not the same.

Investors might establish short positions in a security that continue to exist for varying lengths of time, which can result in a short position being represented in one of the data sets but not the other. For example, an investor might sell a security short and purchase shares to close the position on the same trade date. That position would not appear in the short interest data, though the short sale transaction would appear on the Short Sale Volume Daily File.

On the other hand, an investor might hold a short position open for days or weeks, perhaps as a hedge against another position. While the short sale transaction that established that short position would appear in the Short Sale Volume Daily File only on the date the short sale transaction occurred, the short position would continue to be reflected in the short interest data for as long as the position remained open.

Learn more about short sale volume data.

What Should I Know About Short Interest Data?

Some websites might redistribute the Short Sale Volume Daily File and refer to the data as “short interest,” but this is incorrect because, as explained above, short sale volume data is not the equivalent of short interest position data. In addition, the specific information that an investor sees depends on the source. Often, the data shown on free investor sites represents the results of a proprietary calculation and not the raw short interest data that FINRA and the exchanges disseminate. Different data providers may use different methodologies for calculating and displaying short sale information that are beyond FINRA’s control. Investors are encouraged to seek information from the data provider to understand how the data displayed is derived.

Short Interest – What It Is, What It Is Not (2024)

FAQs

Short Interest – What It Is, What It Is Not? ›

Short interest is the number of shares that have been sold short and remain outstanding. Traders typically sell a security short if they anticipate that price will decline by borrowing shares of stock.

What is the meaning of short interest? ›

Short interest refers to the number of shares sold short but not yet repurchased or covered. The short interest of a company can be indicated as an absolute number or as a percentage of shares outstanding. The short interest is looked at by investors to help determine the prevailing market sentiment toward a stock.

What is the odd lot theory? ›

The Odd Lot Theory is a financial hypothesis suggesting that small investors, typically trading in odd lots, often trade contrary to market trends and are therefore wrong most of the time. This behavior can serve as a contrarian indicator for other market participants.

Is short interest good or bad? ›

If short interest on a particular stock is rising, it's often a sign that investors are more bearish on the stock. In other words, a sizable increase in short interest may be a sign that investors are getting ready to sell, and it may be time to liquidate a long position.

What is the opposite of short interest? ›

In finance, being short in an asset means investing in such a way that the investor will profit if the market value of the asset falls. This is the opposite of the more common long position, where the investor will profit if the market value of the asset rises.

What is an example of a short interest? ›

If a company has 10 million shares of stock outstanding and 1 million shares are sold short, the total short interest is 10%. Short interest can be used as an indicator of market sentiment for a company's stock or the market as a whole, and some bullish investors see high short interest as an opportunity.

What is the actual short interest? ›

Short interest measures the total number of shares that have been sold short in the market. The short interest ratio is a formula used to measure how many days it would take for all the shares short in the marketplace to be covered.

Are odd lot purchases bullish or bearish? ›

When the majority of investors are buying odd lots, it suggests a bullish sentiment, as small investors tend to be more optimistic about the stock's future performance. Conversely, when odd lot selling dominates, it indicates a bearish sentiment, as small investors may be taking profits or cutting their losses.

Is it worth it to buy 1 share of stock? ›

An advantage of purchasing only one share is that, for the most part, it's a low-cost way to gain exposure to the stock market. Additionally, buying a single share can provide an opportunity to get a feel for how Wall Street (and the overall stock market) works and the mechanics behind investing.

How many shares are in a lot? ›

Generally, a board lot for stocks priced at $1 or more is equal to 100 shares. If you trade a number of shares that's not a full board lot, it is referred to as an odd lot. Stocks trading on the NYSE and NASDAQ priced at $1.00 or higher generally have board lots of 100 shares.

Is 20% short interest a lot? ›

Short interest as a percentage of float below 10% indicates strong positive sentiment. Short interest as a percentage of float above 10% is fairly high, indicating the significant pessimistic sentiment. Short interest as a percentage of float above 20% is extremely high.

Is 30% short interest high? ›

Short Interest as a Percentage of Float

This stock metric tells you the percentage of short shares of the float. Usually, anything over 10% is a good candidate for a short squeeze. Sometimes, the short interest needs to be above 30% to trigger a short squeeze rally.

Is 50% short interest high? ›

Key Takeaways

The percentage of shares shorted compared with the float is the short interest. Theoretically, the amount of a company's float that can be shorted is all of it. In reality, the short interest can surpass it in rare cases, but it's not typical for a stock to have a short interest more than 50%.

How do I know if a stock will go up the next day? ›

Some of the common indicators that predict stock prices include Moving Averages, Relative Strength Index (RSI), Bollinger Bands, and MACD (Moving Average Convergence Divergence). These indicators help traders and investors gauge trends, momentum, and potential reversal points in stock prices.

Is it better to short or buy puts? ›

Buying puts offers better profit potential than short selling if the stock declines substantially. The put buyer's entire investment can be lost if the stock doesn't decline below the strike by expiration, but the loss is capped at the initial investment.

What are the most shorted stocks? ›

Most Shorted Stocks
SymbolNamePrice (Intraday)
NVAXNovavax, Inc.10.23
TRUPTrupanion, Inc.25.32
SAVACassava Sciences, Inc.20.63
UPSTUpstart Holdings, Inc.25.87
21 more rows

Is short interest good for a stock? ›

Since investors sell a stock short if they expect it to decline in value, short interest is a bearish indicator. The higher a stock's short interest, the less optimistic the market is about its near-future performance.

Who loses money when a stock is shorted? ›

Put simply, a short sale involves the sale of a stock an investor does not own. When an investor engages in short selling, two things can happen. If the price of the stock drops, the short seller can buy the stock at the lower price and make a profit. If the price of the stock rises, the short seller will lose money.

How long can you hold a short position? ›

There is no set time that an investor can hold a short position.

References

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