How to Determine a Short Interest Stock

Bear (downturn) arket price bounces are often large as short sellers take profit.

It is possible to profit whether a stock price rises or falls. Stock short sellers profit by borrowing shares from their broker, and selling them on the open market with the intention of buying them back at a lower price. Shares sold short in this way must eventually be returned to their broker, meaning short sellers are obligated at some point to buy back the shares. When a large number of company shares are sold short, there is a good chance future share prices will rise as short sellers buy back those shares. The short interest ratio for a company tells you the percentage of a company's shares that are short. Many investors like to buy companies that have a high short interest ratio, because they believe it is a good indicator for higher future prices.

Instructions

1. Find the total number of shares outstanding for the company you wish to find short interest information on. This information is usually found in the investor relations area of most corporate websites. It is also widely available online from websites such as NASDAQ.com and Yahoo! Finance.

2. Find the "shares short" number for the company from the same source you used to find the number of shares outstanding.

3. Divide shares short by the number of shares outstanding. This will give you the company's short interest ratio.

Tips & Warnings

• The short percentage of the float number is generally more useful than short interest. Not all of a company's outstanding shares are available for trading. The float is the number of shares that are actually available to be traded in the stock market. The short percentage of the float number is widely available on financial websites that provide company stock statistics.

• A high short interest ratio can potentially be a bullish (upturn) factor that indicates company share prices may soon rise as short sellers buy back their shares. Short interest that is too high, may indicate that large institutional investors have information about the company that can lead to much lower prices. When short interest is as high as 50 percent or more of the float, it is probably a good idea to avoid buying.

References

• The Street: How Do I Find Short Interest for a Stock?

Resources

• NASDAQ: Short Interest
• Yahoo! Finance: Key Statistics