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Strategies & Market Trends : Shorting stocks: Mechanical aspects
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To: Ted Jackson who wrote (42)11/11/1997 9:59:00 AM
From: Q.  Read Replies (2) of 172
 
I think short interest is of interest for two reasons:

* a high short interest is a risk factor for going short suggesting that you stay away from shorting the stock. There is a possibility of a squeeze, and bad news might not drive the stock down very hard, due to the short covering that is provoked. I've occasionally taken short positions despite this risk, but it is one to be aware of.

* a high short interest is a risk factor for going long, as it indicates that many smart people think there is likely seriously wrong with either the co. or the stock's valuation, so I would avoid owning the stock.

How high is high? Well there's little risk if the short interest is only a couple of days or a few percent of the float. There's a lot of risk if it is more than a couple of weeks or 25% of the float.
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