Page: Shorting a Stock - How I Determine if a Short Squeeze is Likely

My Due Diligence
   Understanding the Stock Market
   Dow to Gold Ratio
   S&P 500 PE Ratio
   January Effect
   My Stock Market Analysis
   How to Invest in Shares
   Analysts's Stock Ratings
   Country Risk Assessment
   Management Assessment
   Key Management Positions
   Management Compensation
   Management Evaluation
   Insider Stock Trading
   Insider Stock Ownership
   Company Ownership Search
   Insider Trading Rules
   Insider Trading Canada
   Insider Trading USA
   Personal Stock Holdings
   Monitor Your Portfolio
   Share Structure
   Employee Stock Options
   Flow-Through Shares
   Short Stock Positions
   Stock Warrants
   Oil and Gas Companies Analysis
   Oil and Gas Exploration Companies
   Investing in Oil and Gas Companies
   Oil and Gas Flow Rates
   Fracking Definition
   Resources and Reserves Definitions
   Mining Companies Analysis
   Mining Industry Standards
   CIM Definition Standards
   Mineral Resource Stocks
   Gold Mining Shares
   Mineral Exploration Companies
   Drilling Rigs
   Drilling Program
   Drilling Results
   Metal Equivalent Calculation
   Metal Recovery Rate
   Mining Costs
   Break Even Analysis
   Metal Value per Tonne
   Mineral Deposit Value
   Mine Life Cycle
   How Do I Invest in Stocks
   How Do I Buy Stocks
   Insider Ownership Analysis
   Country Risk Ranking System
   Stock Investment Analysis
   Institutional Ownership Assessment
   Management Compensation Analysis
   Management Compensation Comparison
   Management Compensation Evaluation
   Shorting a Stock
   Stock Options and Warrants
Support Me
Free Charts
   Base Metals Price Charts
   Energy Price Charts
   Fertilizer Price Charts
   Precious Metals Price Charts
   Stock Market Indices
ETF Finder
   Base Metals ETFs
   Copper ETFs
   Lead ETFs
   Nickel ETFs
   Tin ETFs
   Energy ETFs
   Coal ETFs
   Crude Oil ETFs
   Natural Gas ETFs
   Uranium ETFs
   Fertilizer ETFs
   Potash ETFs
   Minor Metals ETFs
   Rare Earth Metals ETFs
   Precious Metals ETFs
   Gold ETFs
   Palladium ETFs
   Platinum ETFs
   Silver ETFs

Shorting a Stock - How I Determine if a Short Squeeze is Likely


Shorting a stock is explained in the article: Short Stock Positions - How to Short a Stock and Where To Find Short Interest Data. In this article, I refer to 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, also referred to as days-to-cover.

For the short interest and for the short interest ratio, I have determined the average short interest ranges, which are shown in the table below (in the neutral column), and explained in the article about Short Stock Positions mentioned above. In this table you can also see when I determine if a short squeeze is likely, by subdividing the possible outcomes in the following categories: low risk, neutral and high risk. Logically, when a stock's short position is rated as high risk, a short squeeze is more likely compared to stocks with a low risk rating. The higher the outcome of the ratio's, the more likely it is that a short squeeze can happen.

Short Interest Indicators  Calculation  Low Risk  Neutral  High Risk 
Short Interest  (Shares Short / Shares Outstanding) x 100%  < 2%  2% - 3%  > 3% 
Short Interest Ratio  Shares Short / Average Trading Volume Last 30 Days  < 4  4 - 6  > 6 

Short Interest as Percentage of the Float

The short interest as percentage of the float is calculated by dividing the total amount of shares short by the float (i.e. the total shares outstanding minus 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 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. Unfortunately, I was not able to quantify an average short interest range for this ratio, so I have to assess each company individually to determine if I believe a short squeeze is likely.

Comparing a Company's Short Interest Indicators

Comparing a company's short interest indicators with it's indicators of the previous period, will lead to very helpful market insights, especially when you include more periods in this short stock analysis. For example, when Company ABC's short interest decreases by 10%, it means that Mr. Market1 is 10% less certain that the share price of Company ABC will decline. When you see a 10% decrease in the previous period as well, you may assume that the sentiment in this stock is getting less and less pessimistic. Therefore, I normally consider a decline in the shares short for the stocks in my portfolio as a bullish signal, and vice versa.

However, a heavy increase in the short interest can be a bullish indicator too, as it may result in a short squeeze rally. A short squeeze rally may happen when the price of a company's stock increases, which results in a loss for the short sellers, forcing them to cover their losses by buying back the shares in the open market to minimize their losses. This extra demand for the shorted stock leads to a further share price increase, which can lead to more short sellers covering their short positions, etc.


If you would like to be the first to be informed when I add new content to UndervaluedEquity.com, please leave your details in the name grab form on the Support page!

You can also support me directly by clicking on the advertisements that appeal to you, or by making a voluntarily donation with Paypal.

Your support helps me to speed up the process of adding great, free content to UndervaluedEquity.com!


Cautious Note: Even if the outcome of the short interest indicators suggest a short squeeze is likely, it's is never a guarantee that the short squeeze will actually take place. Always complete your due diligence as a whole before you decide what to do with the specific stock on your radar.


What Type of Content Can You Expect to Find on UndervaluedEquity.com

Main Section  Description 
News (RSS)  Today's News Related to the Global Energy and Mining Stocks. On this page a RSS feed is displayed with stock market news related to the energy and mining sectors. You can subscribe to this free RSS feed too! 
My Due Diligence  How I Conduct My Stock's Due Diligence Investigation Process. If you want to know what I learned while I was conducting my due diligence, I recommend you to read all the chapters of the investigation process. 
My Stock Watchlist  Are These the Best Stocks to Buy Today. In my stock watchlist you find stocks who offer great potential, but at the time I analysed these stocks they didn't comply with all my guidelines from my due diligence chapters. 
My Stock Portfolio 

Are These the Best Shares to Buy Now. As the year 2015 has just started, I believe it's about time that I share my stock portfolio with you. Therefore, you will find my updated stock portfolio on this page. 



comments powered by Disqus


1 Mr. Market is a concept from Mr. Benjamin Graham bestselling book: The Intelligent Investor

Support Me
Free Charts
ETF Finder
Legal Terms