Loans
Cards
Insurance
Investment
Stock Market
Electronics Mall
CIBIL Score
Knowledge Centre
Calculators
Do not call
En
The short interest ratio (SIR) is a market indicator that gauges investor sentiment by comparing the volume of shares sold short with the stock’s average daily trading activity. It helps reveal market expectations and the likelihood of short squeezes, though its interpretation requires careful context.
The short interest ratio (SIR) measures the relationship between short positions and market liquidity. It is calculated using the formula:
Short Interest Ratio (SIR) = Total Short Interest ÷ Average Daily Trading Volume
Where:
Total Short Interest is the number of shares that have been sold short but not yet covered.
Average Daily Trading Volume is the average number of shares traded per day over a given period.
This formula shows how many trading days it would take for short sellers to buy back their shares, assuming normal trading activity.
The calculation can be broken down into clear steps:
Find the total number of shares sold short from exchange or market data.
Identify the stock’s average daily trading volume, usually over the past 30 trading days.
Divide the total short interest by the average daily trading volume.
The result indicates the days to cover, or how many days it would take to close all short positions.
A higher ratio means short sellers would take longer to cover, which may signal stronger bearish sentiment or the potential for a short squeeze.
Consider a stock with the following data:
| Factor | Value |
|---|---|
Total Short Interest |
5,00,000 shares |
Average Daily Trading Volume |
1,00,000 shares |
Short Interest Ratio |
5.0 |
In this example, the short interest ratio is 5.0, which means it would take approximately 5 trading days for all short sellers to cover their positions at the stock’s normal trading volume. A ratio above 5 is often seen as a sign of high bearish pressure but can also make the stock vulnerable to a sudden short squeeze if prices rise unexpectedly.
While short interest (SI) and short interest ratio (SIR) are related, they measure different aspects of short selling:
| Basis | Short Interest (SI) | Short Interest Ratio (SIR) |
|---|---|---|
Definition |
Total number of shares that have been sold short but not yet repurchased. |
Ratio of total short interest to average daily trading volume. |
Measure |
Shows the extent of short positions on a stock. |
Indicates how many days it would take to cover short positions. |
Focus |
Absolute number of shares shorted. |
Relative measure that links shorting activity to liquidity. |
Example |
The company has 5,00,000 shares shorted. |
If the average daily trading volume is 1,00,000 shares, SIR = 5.0 (5 days to cover). |
Together, both metrics help investors assess market sentiment and the potential risks of a short squeeze.
While useful, the short interest ratio is not a perfect indicator. Its limitations include:
Market Dependency: Ratios can fluctuate heavily with sudden changes in daily trading volume.
Industry Variations: Different sectors may have different “normal” SIR levels, making comparisons misleading.
No Price Prediction: SIR highlights sentiment but cannot forecast exact price movements.
Time Lag in Data: Short interest data is often reported with a delay, which may reduce accuracy for current decisions.
Needs Context: Should be interpreted alongside other technical and fundamental indicators.
The short interest ratio (SIR) is a valuable tool to understand market sentiment by showing how long it would take to cover short positions at normal trading volumes. For example, a stock with 5,00,000 shares shorted and an average daily volume of 1,00,000 shares will have an SIR of 5.0, suggesting it could take five days to unwind positions. While it offers insights into bearish sentiment and potential short squeezes, investors should use SIR alongside other market indicators to form a balanced view.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Short interest ratio data is usually published by stock exchanges, market research firms, or brokerage platforms.
Yes, the short interest ratio is also referred to as days to cover, since it shows how many trading days it would take to cover all short positions.
Short interest refers to the total number of shares sold short, while the short interest ratio divides this by average trading volume to provide context.
.jpeg)
34520
Navigate the tax maze with ease! Uncover Income Tax 101, demystify jargon with Terms for Beginners, and choose between Old or New Regimes.
65282
Unlock the world of credit! From picking the perfect card to savvy loan management, navigate wisely.
43043
Money Management and Financial Planning covers personal finance basics, setting goals, budgeting...
18791
Explore the investment cosmos! From beginner's guides to sharp-witted strategies, explore India's treasure trove of options.
3243
Discover essential insights on various types of insurance in India.
4385
Welcome to Tech in Finance, where we explore the exciting intersection of technology and finance...
Personal Loan, Business Loan, Collateral
Fixed Deposit, Mutual Fund, NPS, Demat A/C, SGB
General Insurance, Life Insurance, Term Insurance
Stocks, IPOs
Credit Score, Report & Analysis
Smart Phone, Speaker, EarPhone
Academy 
.jpeg "image not found")
