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What is Short Interest ratio? Short Squeeze ? Citron Research?
Short squeezes result when short sellers of a stock move to cover their positions, purchasing large volumes of stock relative to the market volume
This newly increased price can, in turn, trigger additional margin calls and short covering, which in turn may drive up the price further still in a vicious feedback loop
Short squeezes tend to happen in stocks that have expensive borrow rates
These expensive borrow rates can increase the pressure on short sellers to cover their positions, further adding to the reflexive nature of this phenomenon
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What is Short Interest ratio?
The short interest ratio also called days-to-cover ratio represents the number of days it takes short sellers on average to cover their positions, that is repurchase all of the borrowed shares
It is calculated by dividing the number of shares sold short by the average daily trading volume, generally over the last 30 trading days
The ratio is used by fundamental and technical traders to identify trends
The days-to-cover ratio can also be calculated for an entire exchange to determine the sentiment of the market as a whole
If an exchange has a high days-to-cover ratio of around five or greater, this can be taken as a bearish signal, and vice versa
The short interest ratio is not to be confused with the short interest, a similar concept whereby the number of shares sold short is divided by the number of outstanding shares
The latter concept does not take liquidity into account
What is short squeeze ?
A short squeeze can occur if the price of stock with a high short interest begins to have increased demand and a strong upward trend
To cut their losses, short sellers may add to demand by buying shares to cover short positions, causing the share price to further escalate temporarily
In markets with an active options market short sellers can hedge against the risk of a short squeeze by buying call options
Conversely, short squeezes are more likely to occur in stocks with small market capitalization and a small public float
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