The Motley Fool Discussion Boards

Previous Page

Learning to Invest / Terms, Definitions, & Jargon

URL:  https://boards.fool.com/quotwhat-does-days-to-cover-mean-re-short-10800153.aspx

Subject:  Re: Days to cover (re: shorts) Date:  4/23/1999  2:35 PM
Author:  mkraft Number:  84 of 2244


"What does 'days to cover' mean re: 'short interest'?"

From the Fool on the Hill discussion on shorting from 10/28/98, Louis Corrigan explains:

<<Squeezes are most likely to occur with stocks susceptible to these supply/demand imbalances. Some
numbers worth checking are: 1) the size of the "float" (the number of shares actively traded and not
owned by insiders or investors with a greater than 5% stake in the firm) relative to the total number of
shares outstanding; 2) the number of shares sold short relative to the float; and 3) the "short interest
ratio," or the number of shares short versus the average daily trading volume (usually expressed as the
minimum number of days required for all shorts to cover their positions). >>

Kind of a Dale W. explanation, there. ;)

What is the significance of a stock's 'short ratio' for an investor beyond the fact that a high ratio indicates that a lot of people hold the stock 'short' -- (a lot of people who could very well be wrong)?

Not too long ago, Louis Corrigan made reference to it (after the fact) about a stock whose short interest he'd previously criticized -- i.e., he'd felt the 'shorts' were wrong, until they proved to be right.

That particular stock fell. Many others with high 'short ratios' continue to do well. How does one figure out whether the 'short ratio' is meaningful?

Thanks.



Copyright 1996-2019 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us