Short Stock Positions - How to Short a Stock and Where To Find Short Interest Data
Short stock positions arise when the short seller borrows shares from his broker and
immediately sells them on the open market. He then waits, hoping for the stock price to decrease, when the short
seller can profit by purchasing the shares back on the open market. Of course, in order to profit from this trade,
the short seller buys these shares back at a lower price than initially paid for borrowing and returns them to his
broker to reverse his short stock position.
Thus, the profit of the short seller is the difference between the price received after selling the borrowed
shares on the open market and the price paid when he buys the shares back in order to return them to his
Schematic representation1 of how to short stocks:
There is an interesting article written on Investopedia about When to Short a Stock
which you can read by clicking on this link.
There are three key indicators that are commonly used to measure the level of short interest in a stock: the
short interest (as a percentage of a stock’s total amount of shares outstanding), the
short interest as a percentage of a stock’s total float and the short interest
ratio. You will find a more detailed explanation below.
The short interest is calculated by dividing the total amount of shares short by the total amount of shares
outstanding and is often expressed as a percentage. By also calculating the change in short interest you can
even gain more insights into Mr. Market's2 thoughts about the expected direction of the stock's share
price, as an increase in short interest means Mr. Market is more certain that the stock price will decline, and
The float refers to the total number of shares available for trading. Thus, the float is calculated by
subtracting the restricted shares, the insider ownership and the shares owned by shareholders who own at least
5% of the company's total shares outstanding. The difference between this ratio and the 'standard' short
interest is that the long-term shareholders are now excluded, as Mr. Market expects that these ownership groups
will not sell their shares in the near future.
The outcome of this ratio will be higher than the outcome of the 'standard' short interest calculated above, as
the same amount of shares short are now divided by a smaller amount of shares, i.e. only those shares which are
available for trading.
3. Short Interest Ratio
The short interest ratio is derived by dividing the total short position by the average daily trading
volume, generally calculated over the last 30 trading days. The short interest ratio is also referred to as
days to cover, as it is a rough estimate of how many days it would take the shorters to buy back
all of their shorted shares at the stock’s average daily trading volume. Thus, the higher the short interest ratio
is, the more vulnerable the stock is to a short squeeze (as it will take longer to buy back the shares necessary to
close the short stock position).
After interpreting a great deal of data found on the internet, I concluded that the average short
interest ratio range is 4 to 6. As an example, I found this graph3 of the NYSE short interest
for the period 1996 to 2001, as shown below.
Short Interest Data
Twice a month, brokerage firms are required to report the number of shares that have been shorted in their
client accounts to the appropriate regulators. This information is totalized for each stock and then released to
Short interest is the total number of shares of a stock that have been sold short by investors but have not yet
been covered or closed out. Stocks with a high short interest can be quite risky as an investment for two
Because many investors believe that the stock price will fall due to the high short interest, this
could result in a self fulfilling prophecy;
Because many speculators buy stocks with a high short interest for the possible prospect of a
Short squeeze: when the price of a stock with a high short interest begins to rise,
short sellers will often reverse their positions and therefore add to the demand by buying shares to cover their
short positions, causing the share price to increase even further.
You might be asking yourself where to find the online data regarding short stock positions, short
interest and days to cover. Fortunately, there are some great free resources for this information.
As my stock portfolio is mainly concentrated in Canadian and American stocks, I will describe
these resources below.
Canadian Short Stock Positions
To analyse the short stock positions in a specific Canadian stock, you can best use the Short Position
Tool from Stockwatch.com. The short positions for the TSX and TSX-Venture are reported twice per
month (on the 15th and on the last day of every month). Stockwatch.com receives the actual reports three days later
and then updates this data on their website. You can find this data by visiting: http://www.stockwatch.com/Analytics/Shorts.aspx?action=go&symbol=TCM®ion=C. By replacing
'TCM' at the end of the url by the ticker symbol of the company you would like to know the short stock positions
of, you will be redirected to this company's short position report. In this case TCM redirects to the short
position report of Thompson Creek Metals.
American Short Stock Positions
In order to view the short positions in all American listed companies you can go to
In addition you can visitHighShortInterest.comwho
provides a convenient sorted database of stocks which have a high short interest of over 20
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the short interest suggest you should. Always complete your due diligence as a whole before you decide what to do
with the specific stock on your radar.
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