Volume on Shorting a Stock

T

techmann

If I short a stock, does this volume show up on a stock's published volume totals? I would think not since I am simply borrowing the shares from my broker's inventory which the firm already owns instead of the order being filled through an exchange. My way of thinking is that this is more of a private transaction involving just myself and the broker vs. having to involve a public exchange where it gets reported.

A few last questions: Let's say a stock plummets by a large percentage (7% or more) on high relative volume (2X or more). Will I still be able to short the stock or do the available shares for shorting "dry up" because of this unexpected huge drop? In other words, do broker's earmark only a certain portion of their inventory to loan for shorting and does it dynamically change based on the current market conditions?

Thanks a bunch!

T.C.
 
Quote from techmann:


A few last questions: Let's say a stock plummets by a large percentage (7% or more) on high relative volume (2X or more). Will I still be able to short the stock or do the available shares for shorting "dry up" because of this unexpected huge drop? In other words, do broker's earmark only a certain portion of their inventory to loan for shorting and does it dynamically change based on the current market conditions?

Thanks a bunch!

T.C.
More...

No, you can short unlimited number of shares, maybe not unlimited but far more than the actual shares available for that specific stock.

There was a post here on ET titled 'naked short selling', look for that and download the PDF in there, once you read the first pages you will get a better idea.
 
Not all stocks are available for shorting. Your broker will let you know if you can't short a stock. A clearing house is supposed to keep a tally of the number shares shorted versus the number available for shorting. But sometimes things happen that are not supposed to happen and some companies (particularly smaller companies) have claimed that more of their shares have been shorted than the float. Of course this depresses the share price and upsets the CEO. Obviously, if this really happens something is not exactly cricket. There is a thread on naked shorting problems on ET that you might want to read. I think in this case the term "naked" is being used to refer to the shares that are short in excess of the number available for shorting, as opposed to your lack of clothing when you send your short order to your broker.

Also look up the short interest ratio for a stock you are considering as a short candidate. This tells you the number of days that would be required at average volume for the shorts to buy back, i.e., cover, their short positions. Obviously, stocks with a very high short interest ratio have a lot of shares short so they might be candidates for a "short squeeze". This is the kind of squeezing that is not very much fun if you're the one who got squoozed.
 
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