What is considered too high of a short interest ratio? I’m currently short COT overnight with a short interest ratio of 3.3.
By the way, loving the blog, keep it up! I was referred here via Muddy’s blog.
A Penny Stock’s Short Interest: What It Tells You
Short interest is the total number of shares of a particular penny stock that have been sold short by traders but have not yet been closed out or “covered”.
Short interest is calculated by dividing the number of shorted shares by the number of shares outstanding (all available shares offered), or alternatively you can just go to ShortSqueeze.com and they give the information to you automatically when you input a certain penny stock’s symbol. Short interest is only calculated twice a month in stocks, not everyday, so keep that in mind.
If you go to ShortSqueeze.com you’ll see what’s called “days-to-cover” which means that’s the estimated time it would take to cover all shares that are short in the penny stock.
Here’s The Point: The higher the days-to-cover aka short interest ratio, the more likely they’ll be a short squeeze!
So knowing this, how does it help you? Well, whenever I mention a penny stock is setting up to short, and you DO in fact open up a short position in it…you should check the short interest of that penny stock to see the possibility/magnitude of a short squeeze.
Here’s another point to consider: Say there has been a huge manipulated/hyped run of a penny stock that we all know is a scam company…every pennystocker out there is just waiting to short this thing at the right moment. Then that moment happens but now theres so much shares short (because of it’s popularity) that every trader now is vulnerable to a short squeeze.
If you’ve read this post and still don’t exactly know the whole deal behind a short squeeze, get my FREE eBook, cause I explain everything about the short squeeze.
The lesson here is to always consider the short-biased popularity on a given penny stock because the more shares short the more you’re at risk for a squeeze. Don’t get juiced!
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26 comments - add yours
Steven D. (Trading in Hawii)
May 5, 2009
PennyStocker
May 5, 2009
Anything over 10, in my opinion, is too high. COT looks good, but not sure if you’re familiar with DDRX it was/is an earnings play that literally has squeezed people now for over week. So keep that in mind considering COT is also an earnings play. Good luck with your trade, bud! And thanks for the support!
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June 26, 2009
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June 26, 2009
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June 26, 2009
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March 18, 2010
It’s nice that you educate people about penny stocks. Penny stocks trading are quite intriguing, as a great deal of money can be made from penny stocks trading. I had invest in 3 Canadian penny stocks: Blue Note Mining (BNT), Dumont Nickel (DNI) and Hanwei Energy Services Corp. (HE). In date of today, I still hold those 3 companies. My approach is more as an investor than a trader.
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June 3, 2010
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July 7, 2010
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April 6, 2011
Great penny stock short interest article, its not always easy to get this info, you know of any sites that provide it?
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