The total number of shares sold short without being covered, of a particular stock, is called the short interest of that stock. The short interest is represented as a percentage. Thus, stocks with a high percentage (usually over 20%) of short interest are termed as high short interest stocks.
The short interest of stocks is tracked by the stock exchanges to understand market behavior and sentiments of investors around a specific stock. High short interest indicates overwhelmingly bearish sentiments around a particular company and its stock. Such stocks provide massive opportunities for short-term returns to investors.
Factors to Consider Before Investing in High Short Interest Stocks
The most significant factor to consider before investing in high short interest stocks is that they are very volatile. Due to high short interest, short-covering also increases, leading to a high demand for these shares. They have solid tendencies of moving in the upward direction and can lead to a short squeeze.
At the same time, high short interest stocks can be very risky, too. The short sellers may not be right all the time, and the simple belief that the stock prices will go down just not guarantee that the stock prices will actually plummet.
Therefore, investors must perform an in-depth analysis of the causes behind the short interest before investing in high short interest stocks. The analysis must cover the market news and research that caused the bearish sentiments, float of the company, and the industry to which the company belongs to.
Which High Short Interest Stocks Should I Buy?
Most of the major stock exchanges generate monthly reports on the short interest of stocks. Thus, the top high short interest stocks keep changing month-over-month, indicating the overall market sentiments. We have aggregated the best high short interest stocks for investors to choose from.
Investors must ensure that the short interest of stocks they pick must be more than 10%, and the companies must have a high market capitalization of more than $2 billion. Additionally, high short interest stock prices should be below SMA50 to ensure high returns.