Short interest as a percentage of float
Among AMZ’s constituents, Sunoco’s (SUN) ratio is 11.9%, and Tallgrass Energy Partners’ (TEP) ratio is 7.0%. Alon USA Partners’ short interest as a percentage of its float has risen substantially recently. Its ratio was 3.2% at the end of 1Q16.
High short interest as a percentage of float, along with any sudden rise in short interest, indicates that most investors expect a stock’s price to fall.
However, the stock’s price may not necessarily fall, either because investors could be wrong or because the price could increase as investors buy the stock to cover their short positions.
ALDW’s historical short interest
Alon USA Partners’ average short interest since December 2012 is 5.1%. The above graph depicts the movements in Alon USA Partners’ short interest and share price.
The rise in Alon USA Partners’ short interest likely indicates that more investors expect its price to fall in the near future. ALDW has already fallen by 59% so far in 2016.
Short interest ratio
A stock’s short interest ratio indicates the number of days that it will take for its short sellers to cover all of their positions. It’s calculated by dividing short interest with the average trading volumes for a particular stock.
Alon USA Partners’ short interest on July 13, 2016, was ~0.8 million shares, whereas its 30-day average trading volume was ~0.28 million shares. This means that Alon USA Partners’ short interest ratio is 2.9x, indicating that it will take 2.9 days to cover all open short positions in its stock.
In the next and final part of the series, we’ll see how commodity prices and crack spreads affect ALDW’s stock price. We’ll also discuss Alon USA Partners’ outlook.