Short-interest spread
SentimentAdvanced
Short interest is the share of a company's float that has been sold short. A long-short reading of the data buys stocks with relatively low short interest and shorts stocks with relatively high short interest, on the idea that extreme shorting marks names the market has less faith in. The signal is slow because short-interest reports are periodic, and high short interest can also mark a crowded short.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- On each report date, rank a liquid universe by short interest as a percent of float, or by days to cover. Short the highest group and buy the lowest group in equal weight. Hold until the next report. Exclude hard-to-borrow names from the long side only if the rule says so, and do not add a squeeze rule after a famous short squeeze.
- Where AI fits
- AI can align the report date with the date the figure was actually public, which is later than the as-of date. It can apply a borrow filter on the short leg. Using the as-of date as if the market knew it that morning leaks the signal.
- Markets
- Individual stocks with reported short interest and borrow.
- Timeframes
- Biweekly or monthly, matching the reporting cycle.
- Risks
- Heavily shorted stocks can rise violently. Lightly shorted stocks can be boring for a reason. Reporting lags mean the position is always stale. Days-to-cover uses volume, so a volume spike fake-improves the signal. This is not a social-media squeeze system.