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What is Short Interest?

Highlighted from a real earnings story. Explained by Clicked.

Used in a sentence

The Daily Ledger · Markets

The stock's short interest climbed to 18% of its float in the weeks before the earnings report.

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Overview

Short interest is the number of shares in a company that have been sold short and not yet bought back. A short seller borrows shares from an owner, sells them at the current price, and later buys the same number back to return. The seller only profits if the price has fallen by then. Add every seller doing this in one stock together and you get short interest, published as a percentage of the float, the shares actually available to trade.
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Overview

Short interest is the pile of stock that traders have borrowed, sold, and still have to buy back. They sold in the hope of picking the same shares up cheaper later, which is the whole trade. Every share in that pile is a purchase waiting to happen. The figure also reaches you weeks after the day it counts, which is worth remembering when somebody brandishes it as news. 😎

A quick take — often all you need.

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Detail

Short interest is a running count of the shares in a company that have been sold short and not yet bought back. A short seller borrows shares from an owner and sells them at once. They profit only if they can later buy the same number back for less and return them to the lender, and until that purchase happens the shares stay in the count. Short interest is published as a percentage of the float, the shares actually available to trade: 12 million shares sold short against a 60 million float is 20 percent. That percentage can pass 100, because the investor who bought the borrowed shares owns them outright and can lend them to a second short seller. Divide the same total by average daily volume and you get days to cover, an estimate of how many ordinary trading days the buying would take. In the US, brokers file their open positions twice a month, and FINRA publishes the combined total about a week later. The number on the page is always at least that many days behind the market, and it records only how many shares are owed, not who owes them, what they sold at, or whether they are ahead.
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Detail

Short interest is the stack of stock that traders owe back to the people they borrowed it from. Somebody took the shares off a holder, sold them at the going rate, and is now hoping the price drops before they have to buy them back. Add up every position like that in a single ticker and you get the figure everybody quotes, then set it against a normal session's turnover to see if it clears in an afternoon or hangs around for weeks. It logs what has already happened, and reading it as a forecast of where the stock goes next is the oldest trick on the ticker, since nobody knows when any of these positions actually close. The stack can even end up bigger than the whole tradable pile, since whoever picked those shares up holds genuine stock, which can go straight back out on loan to the next person with the identical plan. Every share in it still has to be bought back eventually, since settling up is the only way out, however long it takes. 😎

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Analogy

A cafe opens on Friday, its wiring has not been signed off, and every generator in town is hired out. Your cousin has a spare and lends it to you on the understanding that he gets a generator back. You sell it to the cafe for well above the usual price, expecting to replace it from next week's delivery once prices settle. Then a storm knocks out the grid across the county, and a new generator costs more than the cafe paid you. You still owe your cousin a machine, and you buy it at that higher price. A short seller sells borrowed stock hoping to buy it back for less, and every share owed that way sits in the short interest.
Deepest level reached.
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Analogy

The textbook every first-year needs is out of stock, and the reprint is a month away. Your flatmate has a copy he will not open until finals, so you borrow it and flip it for triple to somebody who queued and got nothing. You plan to replace it at cover price once the reprint lands. Then the reprint slips again, and the going rate for a copy doubles. What you owe him is a book, so the bill climbs every day you leave it alone. Shares work the same way, and the tally of every share somebody owes is the short interest. 😎
Deepest level reached.

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AI explanations may contain errors · Not professional advice

Formal definition — The same term, explained the usual way

Short interest denotes the aggregate number of shares of a security that have been sold short and remain open, that is, not yet repurchased and returned to the lender. It is conventionally expressed as a percentage of the issuer's public float and as a short interest ratio, or days to cover, calculated by dividing the position by average daily trading volume. In the United States, FINRA Rule 4560 requires member firms to report gross short positions in customer and proprietary accounts on two designated settlement dates each month, with the consolidated figures disseminated approximately one week thereafter. Aggregate short interest may exceed 100 percent of the float, as shares purchased from a short seller may themselves be lent and sold short again. The measure reflects positions held rather than any forecast of price direction.

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