1. Your Questions About Nasdaq Short Interest
Robert asks…
Short interest Ratio (Days to cover). Can someone interpret this??
I know the definition which is: Calculated as the aggregate short interest for the month divided
by the average daily share volume traded between short interest settlement dates. If days to
cover is between 0 and 1, it is rounded up to 1 on Nasdaq.com.
I understand the definition, but can someone interpret the numbers. I mean what does a big
Short interest Ratio (let's say above 5) indicate? and what does a small number indicate as
well?
Thanks in advance.
Steve Winston answers:
If the short interest ratio is 5, it would mean that it would take the shorts sellers 5 days to cover
their short positions. The higher the ratio means that the longer it takes the bears (shorts) to buy
back (cover) the borrowed shares if positive news about the company lifts the price.
A smaller number would indicate less time for a short seller to cover his or her position. In most
cases a short interest ratio of 8 or above would prove to be a very hard to cover stock.
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2. Sandra asks…
What are the restrictions of shorting stocks on nasdaq,
nyse,amex?
Why can't you short stocks under $5?, does shorting mean that you have to borrow money
from your broker and pay interest on that money until you cover that short?
Steve Winston answers:
Each brokerage company has rules for shorting. Typically, stocks under $5 are considered too
risky by the broker to short.
When you short, you sell the stock first. And your broker will put the short sale of the proceeds
into your "short" account, where it remains until you buy the stock back, hopefully at a higher
price than what you shorted it for. You'll pocket the difference, less fees into your margin
account. Also, you do not get any dividends from the stock, if any were issued during the time
you are short. You pay the dividends to the owner of the stock.
You do not pay interest on the proceeds from the short sale, nor do you accrue interest from the
proceeds in your short account.
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