Entering text into the input field will update the search result below

Short Interest: What It Is, How It Works & Examples

Updated: May 19, 2022Written By: Kent ThuneReviewed By:

Short Interest represents the number of shares sold short that have not been closed out. Investors may interpret it as a measure of how pessimistic investors are towards a certain stock.

Technical price graph and indicator, red and green candlestick chart on blue theme screen, market volatility, up and down trend. Stock trading, crypto currency background.
Maximusnd/iStock via Getty Images

What Is Short Interest?

Short Interest is a measure of the total number of shares/units of an investment security that have been sold short and remain outstanding (meaning they have not yet been repurchased or covered to close out the short position). Traders typically sell an investment security short if they anticipate that price will decline in the near future.

What Is Short Selling?

Short selling, or to "sell short," means that an investor, or short seller, borrows and sells shares of an investment security, expecting to buy the borrowed security back at a lower price on a later date. The short seller then returns the borrowed security to the lender and hopefully makes a profit.

Warning: Shorting is not for the faint of heart, and can expose investors to unlimited losses. Markets are unpredictable and short sellers can end up losing money if the security price goes up instead of down as they expected.

How Short Interest Works

Short Interest, which can be expressed as a number or as a percentage, measures how many shares of an investment security investors have sold short and remain outstanding. A common use of Short Interest is to gauge investors' collective attitude or sentiment about a particular investment security or about the market more generally.

Short Interest can be analyzed for an individual stock, a sector, a broad market index, or the market as a whole. Market exchanges, such as the NYSE, report on the Short Interest of stocks at the end of each month.

What Short Interest Means For Investors

If an investment security has a rising level of Short Interest, it doesn't necessarily mean that the investment security will soon fall in price. It just means that a higher number of investors are betting that that the investment security will fall in price.

Furthermore, some investors short an investment as a hedging strategy to protect another long position. Long investors might in fact assess higher levels of Short Interest as a reason to do more diligent research for themselves to ensure they understand what is causing others to bet against the stock.

Short Interest as an Indicator of Market Sentiment

Many investors sell short because they expect prices for a particular investment security to fall. For this reason, an high amount of Short Interest can mean that investor sentiment is pessimistic.

Some contrarian investors may interpret high Short Interest as an indication that market sentiment is too pessimistic, which can be interpreted as a bullish signal. Another reason some investors bet on stocks with heavy Short Interest is due to the knowledge that eventually those short sellers will have to repurchase the stock, meaning there's guaranteed buying interest in the future.

Short Interest Formula & Example

To calculate Short Interest for a stock, divide the number of shares sold short by the float, which is the total number of shares available for the public to buy. Another term for Short Interest is short float percentage, which is the percentage of the float that is borrowed.

Short Interest = Number of Shares Sold Short / Number of Shares in Float

For example, let's say a company has 100 million shares of stock outstanding and 2 million shares sold short. Here's the Short Interest calculation:

2 million / 100 million = 2% Short Interest

Short Interest Ratio Definition & Formula

The Short Interest ratio is a ratio that compares the number of shares of a stock versus the stock's average trading volume. Used interchangeably with a related term, "days to cover," the Short Interest ratio indicates how many days it would take for all of a stock's shares that are sold short to be covered or repurchased in the market.

Here's the formula for Short Interest ratio:

Short Interest Ratio = Short Interest / Average Daily Trading Volume

Short Interest Ratio vs. Short Interest

Short Interest and Short Interest ratio are not the same thing. Short Interest measures a number or percentage of shares sold short, whereas the Short Interest ratio is used to estimate how many normal trading volume days would be required for the total number of shares sold short to be covered or repurchased.

What Is a Short Squeeze?

A short squeeze occurs when a high number of short sellers attempt to quickly cut their losses and exit their short positions by purchasing their borrowed shares. A short squeeze often happens because short sellers panic about potential losses if the stock price rises.

The more a stock price rises, the more losses a short seller takes on. Short sellers who want to put an end to their losses get "squeezed" out of their short positions by purchasing shares, which then makes the stock price climb further. If a stock is heavily shorted, the squeeze becomes larger.

Limitations of Short Interest

Short Interest can be used as an indicator of market sentiment around a particular security or the market itself. However, there are some limitations of Short Interest, such as infrequent updates and inconsistent signals.

  • Infrequent report updates: If an investor follows Short Interest reports, such as the NYSE Short Interest Report, this information is only updated on a monthly basis. The Nasdaq updates Short Interest twice-monthly. Market conditions can change at a much faster pace, making infrequent report updates less relevant to shifting trends and an ever-changing news cycle.
  • Inconsistent signals: Many market changes are not signaled in advance by changes in Short Interest. Similarly, a stock can be heavily shorted for a long period of time without seeing a short squeeze or a decline in price.

Bottom Line

A high level of Short Interest does not always mean that a stock price or a segment of the market is headed for a correction. Short Interest can be a useful tool for an investor or trader but it should never be used as a sole determining factor in making investment decisions.

This article was written by

Kent Thune profile picture
Kent Thune, CFP®, is a fiduciary investment advisor specializing in tactical asset allocation and portfolio management with a focus on ETFs and sector investing. Mr. Thune has 25 years of wealth management experience and has navigated clients through four bear markets and some of the most challenging economic environments in history. As a writer, Kent's articles have been seen on multiple investing and finance websites, including Seeking Alpha, Kiplinger, MarketWatch, The Motley Fool, Yahoo Finance, and The Balance. Mr. Thune's registered investment advisory firm is headquartered in Hilton Head Island, SC where he serves clients all around the United States. When not writing or advising clients, Kent spends time with his wife and two sons, plays guitar, or works on his philosophy book that he plans to publish in 2024.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You


Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.