Short interest represents the total shares of a particular stock that have been shorted but haven’t been closed out yet. Short interest as a percentage of shares outstanding in Shell Midstream Partners (SHLX) stock for the settlement date of November 30, 2016, was 0.6%. It was higher compared to 0.5% for November 15, 2016. The short interest in SHLX is close to the ~0.56% average since the company’s listing in 2014.
The above graph shows changes in SHLX’s short interest since the beginning of 2016. The current short interest is at a lower level compared to the beginning of 2016. However, it has been increasing since August.
Generally, a high short interest as a percentage of float and any sudden increase in short interest indicate that more investors expect a stock to fall. However, the 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.
Short interest ratio
Short interest ratio indicates the number of days it would take for short sellers to cover all their positions. It’s calculated by dividing short interest by the average trading volumes for a particular stock.
For Shell Midstream Partners, short interest on November 30, 2016, was ~1 million shares. The average daily trading volume was ~0.6 million shares. So, Shell Midstream Partners’s short interest ratio is 1.7x. That ratio indicates that it would take 1.7 days to cover all open short positions in SHLX stock.
In the final part of this series, we’ll compare Shell Midstream Partners’s valuation with its peers.