The short interest ratio (also called days-to-cover ratio) represents the number of days it takes short sellers on average to cover their positions, that is repurchase all of the borrowed shares. It is calculated by dividing the number of shares sold short by the average daily trading volume, generally over the last 30 trading days. The ratio is used by fundamental and technical traders to identify trends. The days-to-cover ratio can also be calculated for an entire exchange to determine the sentiment of the market as a whole. If an exchange has a high days-to-cover ratio of around five or greater, this can be taken as a bearish signal, and vice versa. The short interest ratio is not to be confused with the short interest, a similar concept whereby the number of shares sold short is divided by the number of outstanding shares. The latter concept does not take liquidity into account.

Short squeeze (a.k.a. Bear Squeeze)

short squeeze In the stock market, a short squeeze is a rapid increase in the price of a stock owing primarily to an excess of short selling of a stock rather than underlying fundamentals. A short squeeze occurs when demand has increased relative to supply beca ...

can occur if the price of stock with a high short interest begins to have increased demand and a strong upward trend. To cut their losses, short sellers may add to demand by buying shares to cover short positions, causing the share price to further escalate temporarily. In markets with an active options market short sellers can hedge against the risk of a short squeeze by buying call options. Conversely, short squeezes are more likely to occur in stocks with small

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by ...

and a small

public float In the context of stock markets, the public float or free float represents the portion of shares of a corporation that are in the hands of public investors as opposed to locked-in shares held by promoters, company officers, controlling-interest inv ...

References

{{Reflist Short selling Fundamental analysis Financial ratios Corporate finance