From investopedia.com, "Short-Interest Ratio
The short-interest ratio is the number of shares sold short (short interest) divided by average daily volume. This is often called the "days-to-cover ratio" because it tells, given the stock's average trading volume, how many days it will take short sellers to cover their positions if positive news about the company lifts the price.
Again, let's assume Microsoft has a short interest of 75 million shares, while the average daily volume of shares traded is 70 million. Doing a quick and easy calculation (75,000,000/70,000,000) we find that it would take 1.07 days for all of the short sellers to cover their positions. The higher the ratio, the longer it will take to buy back the borrowed shares - an important factor upon which traders or investors decide whether to take a short position. Typically, if the days to cover stretch past eight or more days, covering a short position could prove difficult.
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Thus, in the case of google:
yahoo shows Average Volume (3 month)3: 5,650,810
Shares Short (as of 09-Jan-07)3: 5.81M
short ratio=shares short/avg vol(3mo)
=1.03
however, using 10 day vol it is
=0.81
not sure if they are rounding to get 1.1,
or using slightly different daily vol from alt source. Short interest can also be interpreted as days to cover; i.e., it would take approximately 1.03 days for all the short positions to cover if volume traded at the average daily liquidity (approximate, because non-covering buyers also add demand). Even less than that, if vol was say closer to the daily of last 10 days.
How to interpret this? If the mm was looking at the figure and wanted to squeeze shorts, the higher the number, would be better. So if the typical days to cover was about 2 days, and the short interest ratio was say 5, they could ratchet it up on a squeeze and a lot of shorts would be forced to cover quickly as the supply would be short term limited. In the case of google, the
small short ratio seems about average and something that shouldn't cause concern for a squeeze.
Look at ffiv has a short ratio of 2.2, and lately it has been rising on lowered estimates and guidance. Methinks some shorts are getting the squeeze there.
Or kkd has a short interest ratio of 22.8!
@8Xbook and -40% equity, and just look how that stock has been taking off in the past year.
You could take a distribution of short interest ratio of nas 100 stocks, to gauge a better feeling for the average.
Consider the outlying tail ends to be indicitive of heavy short interest and potential for squeeze play.
