The higher the short interest and SIR, the greater
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Posted On: 05/17/2017 12:15:15 AM
The higher the short interest and SIR, the greater the risk that short covering may occur in a disorderly fashion. For example, consider a stock with 50 million shares outstanding, 10 million shares sold short and average daily trading volume of 1 million shares. This stock has a short interest of 20% and a SIR of 10, both of which are quite high, suggesting that short covering could be difficult.
Short covering is generally responsible for the initial stages of a rally after a prolonged bear market or a protracted decline in a stock. Short sellers usually have a shorter trading horizon than investors with long positions. This is due to the risk of runaway losses on a short squeeze, so they are quick to cover their short positions on any signs of a turnaround in market sentiment or a stock’s fortunes.
Read more: Short Covering http://www.investopedia.com/terms/s/shortcovering.asp#ixzz4hJ2pPMnL
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Short covering is generally responsible for the initial stages of a rally after a prolonged bear market or a protracted decline in a stock. Short sellers usually have a shorter trading horizon than investors with long positions. This is due to the risk of runaway losses on a short squeeze, so they are quick to cover their short positions on any signs of a turnaround in market sentiment or a stock’s fortunes.
Read more: Short Covering http://www.investopedia.com/terms/s/shortcovering.asp#ixzz4hJ2pPMnL
Follow us: Investopedia on Facebook
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