With this in mind, if a sudden buying frenzy were to occur, we see short-sellers frantically covering their positions to minimize their loss. If this trend continues, then you’ll know what to look for.Ī high number of shares sold short and/or a low number of shares available to trade. You’ll see these principles in both the VW short squeeze and the GameStop short squeeze. For that matter, any stock or index with a high short interest ratio has two defining characteristics. Defining Characteristics of a High Short Interest Stockĭespite which definition you use, the fundamental principles are the same. For these reasons, a high short-interest stock should be approached with extreme caution. Furthermore, “days to cover” above 10 indicates extreme pessimism. Are you confused yet?īut what we do know is that a short interest as a percentage of float above 20% is considered extremely high. Last but not least, we have the NYSE short interest ratio. To begin with, it could be the number of days to cover or the short interest as a percentage of float. And it’s no surprise that traders often disagree on the definition because there’s more than one way to calculate it.įurther complicating matters is the fact that we have a few different definitions of short interest ratio. Like most things in life, there aren’t black and white criteria for calculating the exact math behind the short-interest ratio. At this point, you return your rented shares to your broker and bank $36,000 in profits. Sure enough, the share price tanks, you repurchase them back at the bargain-basement price of $40. You predict the price will fall because it’s so overvalued. I liken it to renting something you get to use it temporarily, but you need to return it eventually. Keep that n mind about a VW short squeeze.Īs an example, you “borrow” or sell short 100 shares of GameStop $400. When you short a stock, you don’t own the shares outright, but you borrow them from your broker. All of these reasons could be justification for going “ short” on a stock. Perhaps whispers about poor earning or bankrupts are whirling, or maybe it’s an airline company that can’t fly due to a pandemic. Let’s say, for some reason you believe the value of a company is going to fall.
Likewise, just because that lower control arm has standardized attachment dimensions doesn’t mean that you can’t have a light-duty and heavy-duty version of that part. That doesn’t mean a Passat will be stuck with the same spring rates and damping rates that a Polo uses – although you might be able to interchange them after the fact. The connection points to the lower control arms, brake calipers, and upper strut mount are standardized. It mostly means that certain installation dimensions are standardized.įor example, take a MacPherson strut. The modular construction arrangement doesn’t necessarily mean that the same parts will be used in every vehicle.