What Is Short Interest?

The short answer

Short interest is the total number of shares of a stock that investors have sold short and have not yet bought back. It is a snapshot taken twice a month. Brokers report it to FINRA, the self-regulatory organization that oversees U.S. broker-dealers, and FINRA and the exchanges publish it about a week and a half later.

A high short interest means many investors are betting the price will fall. It can also set up the conditions for a short squeeze, where short sellers rush to buy shares back and push the price up. Short interest is a measure of positions, not of trading activity, and it is easy to misread.

How short selling works

A short sale is a sale of stock the seller does not own. The seller borrows shares, usually through a broker, sells them, and hopes to buy them back later at a lower price. The shares bought back are returned to the lender. If the price falls, the short seller keeps the difference. If the price rises, they lose money, and in theory the loss has no ceiling because a stock price has no upper limit.

Short sellers pay a fee to borrow the shares and must keep collateral with their broker. If the price rises, the broker can demand more collateral (a margin call), which may force the short seller to buy back shares at a bad time.

Buying back the borrowed shares is called covering. Short interest is the pile of shares that have been sold short and not yet covered.

How short interest is reported

Under FINRA Rule 4560, FINRA member firms must report short positions in all equity securities twice a month. According to FINRA’s description of the data:

• The mid-month report reflects positions on the settlement date of the 15th. If the 15th is not a settlement date, the previous settlement day is used.
• The end-of-month report reflects positions on the last settlement day of the month.
• Firms must report by 6 p.m. Eastern time on the second business day after the settlement date.
• The data is published on the seventh business day after the settlement date.

So when you see a short interest figure, it describes positions from roughly one to two weeks earlier. In a fast-moving stock, a lot can change in that time.

FINRA stresses that short interest is “just a snapshot” on two days each month and is different from short sale volume, which counts how many shares were sold short during a day. A stock can have heavy short selling during the day by market makers and day traders who close their positions before the end of the day, and those trades never appear in short interest. FINRA also notes that data providers may calculate related ratios differently, so it is worth checking how a website gets its numbers.

Ways to measure it

The raw number of shares sold short means little on its own. Two ratios put it in context.

Short interest as a percentage of float. The float is the number of shares available for public trading, which excludes shares held by insiders and other locked-up holders. Dividing short interest by the float shows how much of the tradable stock has been sold short. Data providers define float in slightly different ways, which is one reason figures differ from site to site.

Days to cover. Nasdaq defines days to cover as “the number of days of average share volume it would require to buy all of the shares that were sold short.” The formula is short interest divided by average daily trading volume. If 10 million shares are sold short and the stock trades 2 million shares a day, days to cover is 5. A higher number suggests it would be harder for short sellers to exit quickly without moving the price. It is a rough guide, because volume changes and not every short seller would try to cover at once.

Short interest above 100%

It sounds impossible, but short interest can exceed the number of shares in the float. The SEC staff explained in its October 2021 report on the early-2021 meme stock episode that this can happen “when the same shares are lent multiple times.” A buyer of a shorted share can lend it out again, and that share can be sold short a second time.

What a short squeeze is

A short squeeze happens when a heavily shorted stock rises sharply and short sellers buy shares to limit their losses. Their buying adds to demand and can push the price higher still, forcing more short sellers to cover. Squeezes tend to be most extreme when short interest is high, days to cover is long, and shares are hard to borrow.

Squeezes usually do not last. Once short sellers have covered, the extra demand disappears, and the price often falls back. High short interest does not guarantee a squeeze. Short sellers are sometimes right, and a heavily shorted company can keep falling.

How short interest relates to fails to deliver

A fail to deliver happens when a seller does not deliver shares to the buyer by the settlement date. The SEC publishes fails-to-deliver data in two files per month, one covering each half of the month. The figures are the “aggregate net balance of shares that failed to be delivered” as of each settlement date.

The two numbers are related but measure different things:

• Short interest counts open short positions on brokers’ books on two dates a month.
• Fails to deliver count shares that were not delivered on time, for any reason.

The SEC says plainly that “fails-to-deliver are not necessarily the result of short selling.” Fails can come from ordinary sales by long holders, paperwork delays or operational problems. A rise in fails can line up with heavy short selling, but you cannot read one directly from the other. WallStPal tracks the SEC’s fails data on the fails to deliver page.

How to use short interest

Short interest tells you what a group of investors is betting, not whether they are correct. A few habits help:

• Look at the trend over several reporting periods, not one snapshot.
• Compare short interest with the float and with trading volume.
• Check the date the data reflects. It is always at least a week old.
• Remember that some short positions are hedges against other holdings, and are not outright bets against the company.

For broader context on how a stock is trading, see WallStPal’s markets page and individual stock pages.

Examples

GameStop, January 2021. The SEC staff report found that GameStop’s short interest reached 122.97% of its float in January 2021, and that it was the only stock the staff observed with short interest above its shares outstanding that month. The stock rose about 2,700% from its January 8 low to an intraday high of $483 on January 28. The staff concluded that short sellers buying to cover was “a small fraction of overall buy volume” and that “it was the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation.” The staff also saw spikes in fails to deliver but noted they were “an imperfect measure of naked short selling.” Source: SEC staff report, October 2021.

Volkswagen, October 2008. After Porsche disclosed a larger position in Volkswagen than the market expected, short sellers rushed to cover. Volkswagen’s Frankfurt-listed shares more than quadrupled in two days, briefly making it the world’s most valuable company. The peak came on October 28, 2008. The shares then fell 58% over the next four days, and a month later were down 70% from the top, according to FactSet data reported by CNBC.

Explain it like I’m 13

Say a friend borrows your video game and sells it for $50, planning to buy a cheaper used copy later for $30 and give that back to you. They keep the $20 difference. That is a short sale.

Now imagine lots of kids did the same with the same game, and suddenly the game becomes popular and the price jumps to $90. Everyone who borrowed a copy has to buy one to give back, all at the same time. Their buying pushes the price even higher. That is a short squeeze.

Short interest is just a count of how many borrowed copies are still out there waiting to be returned.

Where the rule comes from

• FINRA, Rule 4560 (Short-Interest Reporting) and equity short interest data description.
• FINRA, Short Interest: What It Is, What It Is Not.
• SEC, Fails-to-Deliver Data.
• Nasdaq, Short Interest fact sheet (days to cover definition).

This guide explains public data. It is not investment advice.

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