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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.
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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.
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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. How Long Did the 2008 VW Short Squeeze Last?ĭid you know that you can make money when a stock is falling in price? Yeah, it’s possible through short selling.