Short Ratio

Short ratio (also called days to cover) is the number of shares currently sold short divided by the stock’s average daily volume. It answers a specific question: how many days would it take for all short sellers to buy back their shares, assuming normal trading volume? A stock with 10 million shares short and an average volume of 2 million shares per day has a short ratio of 5.

The higher the short ratio, the longer it would take short sellers to exit. That matters because if the stock starts rising, short sellers need to buy shares to close their positions, which pushes the price up further, which forces more short sellers to cover. The feedback loop is called a short squeeze.

A short ratio above 5–7 days is generally considered high. Below 2 is low. But context matters — a heavily shorted stock in a declining sector might stay heavily shorted for months without squeezing.

Short squeeze screening is the most common use. Traders look for stocks with a high short ratio where something positive could act as a catalyst — an upcoming earnings report, a new product launch, or a sector rotation. The combination of heavy short interest and a positive surprise can produce rapid, outsized moves.

Others use short ratio as a contrarian indicator. Heavy short interest means a lot of people are betting against the stock. If you disagree with them, the short ratio tells you there is fuel for a move in your favor if you turn out to be right.