Legal Definitions - short interest

Short interest refers to the total number of shares of a particular company's stock that investors have borrowed and sold, but have not yet repurchased to return to the original lenders. It represents the aggregate number of outstanding "short" positions, essentially measuring the total amount of money investors are betting that a stock's price will fall.

Here are some examples to illustrate this concept:

• Imagine a popular social media company, ConnectAll Inc., has 50 million shares of its stock that have been sold short by various investors. This means that 50 million shares of ConnectAll have been borrowed and sold, with the expectation that their price will drop, allowing the short sellers to buy them back at a lower price and profit. This figure of 50 million shares represents the short interest in ConnectAll Inc.

  This example demonstrates the core meaning of short interest as the cumulative number of shares that are currently subject to a "bet against" the company's stock price.

• Consider two rival electric vehicle manufacturers, ElectroDrive and FutureWheels. ElectroDrive has a short interest of 15 million shares, while FutureWheels has a short interest of 3 million shares. Even if both companies have a similar total number of shares available for trading, the significantly higher short interest in ElectroDrive suggests that a larger number of investors believe ElectroDrive's stock price is likely to decline compared to FutureWheels, perhaps due to concerns about its production targets or market competition.

  This illustrates how short interest can be used comparatively to gauge overall investor sentiment and the level of outstanding bearish bets against different companies within the same industry.

• A small biotechnology firm, BioCure Pharma, announces disappointing clinical trial results, causing its stock price to fall. Many investors, anticipating further declines, decide to short sell BioCure Pharma shares. Over the next few days, the short interest in BioCure Pharma jumps from 500,000 shares to 2 million shares. This rapid increase in short interest indicates a growing consensus among investors that the company's future prospects are dim, leading more people to bet against its stock.

  This example shows how changes in short interest can reflect evolving market sentiment and investor expectations regarding a company's performance or future stock price movements.