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Short Interest in KMI: Reading the Trend

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Dec. 4 2020, Updated 3:52 p.m. ET

Short interest

Short interest refers the total shares of a particular stock that have been shorted but haven’t yet been closed out. Short interest as a percentage of shares outstanding in Kinder Morgan (KMI) stock for January 31, 2017, settlement date was 0.9%—unchanged from January 13, 2017. Short interest in KMI is thus on the lower side of its average of ~2.5% over the past five years.

The above graph shows changes in short interest in KMI over the past year. The current short interest is at the lowest level during this period.

The lower short interest in Kinder Morgan’s stock likely indicates that not many investors expect its price to fall further in the near future.

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We should note here that, generally, a high short interest as a percentage of float, as well as any sudden increase in short interest of any stock, indicates that more investors expect the stock’s price 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

The short interest ratio indicates the days it will take for the short sellers to cover all their positions. It’s calculated by dividing short interest with the average trading volumes for a particular stock.

For Kinder Morgan, the short interest on January 31, 2017, was ~19.7 million shares, whereas the average daily trading volume was 13.3 million shares. This means that Kinder Morgan’s short interest ratio was 1.5x on that date, indicating that from that date it would take 1.5 days to cover all open short positions in KMI’s stock.

Now let’s take a closer look at Kinder Morgan’s valuation.

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