Short Ratio

Short Ratio: The short ratio, also known as the Short Interest ratio, is a financial metric that measures the number of days it would take for short sellers to cover their short positions based on the average daily trading volume of a security. It is calculated by dividing the total number of Shares sold short by the average daily trading volume.

Formula:

Short Ratio = Short Interest / Average Daily Volume

Example:

If a Stock has a Short Interest of 1,000,000 Shares and an average daily trading volume of 200,000 Shares, the short ratio would be:

Short Ratio = 1,000,000 / 200,000 = 5

This means it would take approximately 5 days for all short sellers to cover their positions if they bought back Shares at the average daily volume.

Cases:

• High Short Ratio: A high short ratio may indicate that a Stock is heavily shorted, potentially signaling bearish sentiment among investors.
• Low Short Ratio: A low short ratio suggests that there is less Short Interest relative to the trading volume, possibly indicating Bullish sentiment.
• Short Squeeze Scenario: If a Stock with a high short ratio experiences a price increase, short sellers may rush to cover their positions, leading to a further price spike.