Plus, you don’t own the shares you short sell, so it’s a simple investment.
The financial market records and tracks stock short. You may receive such a report monthly, depending on the exchange.
It’ll show you the unrecovered shares of each stock short. That’s what the market calls the short interest. As such, a company’s short interest can appear as a percentage of shares short against the outstanding shares.
High Short Interest Meaning
The monthly reports show you any changes in short interest. As such, you may see the short interest increase or decrease. Companies with high short interest have more shares sold short.
It might signify how the market feels about the company’s future. For example, if the short interest increases, the market speculates the price will fall.
The market may say a company’s shares have a high short interest if it’s over 20%. But some investors don’t agree, so the financial market doesn’t have a specific percentage that works for all.
Why High Shorted Stocks Matter
Many investors consider a high short interest to be a bearish indicator. It signals the price may go downward. Hence, such investors gain by buying shares at a low price and selling when it increases.
As such, short sellers gain when the market changes drastically, and every investor rushes to buy those stocks. To find such high short interest stocks, it takes time and resources to monitor company news and price changes, among other factors.
However, companies with highest short interest aren’t always a good investment option. That’s because you get the report monthly, which means you’ll be using old data and not necessarily relevant data about the highest short interest stocks today.
On top of that, some shares may maintain instead of declining and have you waiting for a long time. It can also be a risky investment where sudden news about a company affects the price and leads you to a short squeeze.