Understanding Short Interest Positions

Stock markets release regularly aggregate short-interest positions based on broker-dealer reports of such positions for customer, prime broker, and principal trading accounts. This information helps investors gauge overall market sentiment — whether traders are pessimistic or optimistic about a particular stock. Some studies suggest that high levels of short interest predict future negative news and negative earnings surprises. 22 others suggest that short-interest positions either indicate a market upturn or no direction at all.

The NYSE group reports short interest twice a month for its listings. Short-interest data for each issue is collected by the Financial Industry Regulatory Authority from broker-dealers.

http://www.nyxdata.com/nysedata/default.aspx?tabid=748

NASDAQ® short interest also updates its short-interest report twice each month. Short-interest data is based on mid-month and end-of-month settlement dates and is released after 4:00 p.m. et on the dissemination date.

http://www.nasdaqtrader.com/trader.aspx?id=Shortinterest

From the chart (below) on NYSE short interest as of February 13, 2009, the Ford motor company had a short position of 267,189,909 shares, down from 273 million shares on January 30, 2009. From a calculation to determine the short-interest ratio (267,189,909/46,668,000), it would take 5.73 days of trading for all the short sellers to cover their positions.

The higher the short-interest ratio, the longer it will take to buy enough shares to replace the borrowed ones. Investors use this ratio as part of the factors they consider in deciding whether to take a short position. If the “days to cover” exceed eight days, covering a short position could generally prove difficult to do.