Uncovering Stocks With Surging Short Interest

Introduction

This tutorial aims to provide a clear understanding of how to uncover stocks with surging short interest. It covers essential concepts related to short selling, the threshold list, and practical steps for analyzing stocks with high short interest. This knowledge can be valuable for investors looking to make informed decisions in the stock market.

Step 1: Understanding Short Selling

• Short selling involves selling stocks you do not own, expecting the price to decrease.
• To short a stock, you must borrow it from someone who owns it, often through a brokerage.
• Key terms to know:
  • Locate: The process of identifying where to borrow the stock.
  • Fail to Deliver: Occurs when a seller cannot meet the obligation to deliver the borrowed stock.

Step 2: Exploring the Threshold List

• The threshold list includes stocks that have failed to deliver for several consecutive days.
• Stocks may appear on this list when demand to short exceeds the available supply.
• Factors influencing stocks on this list:
  • Low outstanding shares or low float can lead to shortages.
  • Stocks with high short interest may be harder to borrow.

Step 3: Analyzing Stocks on the Threshold List

• Look for stocks that have been on the threshold list for multiple days.
• Check the number of shares outstanding to gauge the potential for short interest.
• Example:
  • A stock with only 1.9 million shares outstanding may face higher short interest challenges than one with 420 million shares.

Step 4: Monitoring Trends in Short Interest

• Use historical data to identify trends:
  • Increasing numbers of stocks on the threshold list may indicate growing bearish sentiment.
  • Compare current numbers against historical averages to spot unusual spikes.

Step 5: Evaluating Performance

• Assess the performance of stocks on the threshold list to identify potential investment opportunities.
• Look for correlations between stock price movements and changes in short interest.

Step 6: Investigating Broker Practices

• Understand how brokers handle short selling:
  • Brokers may lend your stocks to generate fees, which can affect your ability to sell.
  • It's crucial to know your broker's policies regarding stock lending and their fees.

Conclusion

Understanding how to uncover stocks with surging short interest can enhance your investment strategy. By familiarizing yourself with short selling, the threshold list, and market trends, you can make more informed decisions. Keep monitoring stocks on the threshold list and analyzing their performance to identify potential investment opportunities. Always check with your broker regarding their policies on stock lending to avoid unexpected issues when selling your stocks.