Lesson 3 of 5 · 3 min · Filings

Short interest, explained: the bet against

Short interest shows how many shares are sold short. Big numbers cut both ways.

1. Short selling is a bet that a price will fall. You borrow shares, sell them, and hope to buy them back cheaper later. If the price rises instead, there is no limit to the loss.

2. Short interest is the number of shares sold short and not yet bought back. In the US, brokers report it to FINRA twice a month, for the middle and the end of each month, and FINRA publishes it seven business days later.

3. Two numbers give it scale. First, short interest as a share of all shares: under 3% is light, above 15% is a crowd. Second, days to cover: short interest divided by the shares traded on a normal day.

4. Short sellers are often right. Asquith, Pathak and Ritter found that heavily shorted stocks with few big institutional owners trailed by about 2% a month, mostly small companies. Boehmer, Huszár and Jordan found the other side: lightly shorted, busily traded stocks did better than expected.

5. But a crowd can get trapped. At the end of 2020, GameStop’s short interest stood at 109% of its shares, more than every share in existence, because borrowed shares can be lent out again. When the price jumped in January 2021, the shorts had to buy back, pushing it higher still. That is a short squeeze.

6. So treat short interest as a signal, not a verdict: it shows the size of the bet against, not who will win. Ryufin’s ownership page shows the share sold short, the days to cover and the trend for every US stock.