Float vs Short Interest vs Outstanding Shares

We Added Short Interest and Outstanding Shares

If you regularly use FloatChecker when trading stocks, you may have noticed some recent changes. That’s because we added short percentage of float and outstanding shares to our collection of float information. We’ve heard from a number of investors requesting this data for their trading. Hopefully others will find these items useful as well.

We tried arranging float, short interest and outstanding shares in an intuitive way that will allow you to quickly scan these values across multiple financial sites at once. As the image above shows, the first row contains float data for Yahoo Finance, Finviz, TD Ameritrade, Morningstar and The Wall Street Journal. The next two rows contain short percentage of float and outstanding shares for each of the financial sites.

Let’s look at these two new data points more closely and see how we can apply them to our trading.

Contents

  • What does Short Interest mean?
  • How is Short Interest related to Stock Float?
  • Using Short Interest to Trade
  • Outstanding Shares Information
  • Conclusion

What does Short Interest mean?

Short interest is considered to be the number of shares of a stock that investors have sold short, typically represented as a ratio or percentage. The higher the percentage, the greater the number of shares shorted. Short selling occurs when you sell shares borrowed from a broker in the hope that the share price will fall. If the share price does fall, the shares can be bought back at a lower price, resulting in a profit. Conversely, if the stock goes up in price the shares will be purchased back at a loss.

As a simplified example, let’s say you borrow and sell 100 shares of a stock at $25 for a total of $2500. If the share price fell to $20, you would be able to purchase the 100 shares back for a total of $2000, profiting around $500 from the difference. Of course, short selling is much more involved and you can research the issues of borrowing fees and margin calls yourself. But the most common risk that most traders have heard of when it comes to shorting a stock is the idea of “limitless losses” and the “short squeeze.” When you buy a stock in a routine trade, your loss is limited to the total amount you invested in case the share price goes to zero. When you short a stock, it’s price can continue to increase, which theoretically means your losses can be infinite. In reality, let’s hope you’ve exited the trade or used stop orders to protect yourself.

There are situations, however, when the price of a shorted stock begins to rise quickly. This can trigger a wave of short sellers rushing in to purchase shares to minimize losses. That can likewise trigger a wave of buyers looking to profit from the heightened activity. All of this buying can result in a short squeeze that rockets the share price ever higher as more and more short sellers need to purchase the stock back, or cover their positions.

One of the most famous examples of a short squeeze occurred in early January 2021 when the stock price of GameStop Corp. (GME) started the year at just under $20 and quickly soared to a high of $483 by January 28.

GameStop GME short squeeze 2021
GameStop (GME) short squeeze chart from early 2021. Courtesy of Tradingview.com.

Much of the GME short squeeze was fueled by social media hype and associated news coverage. But not all stocks have to be as famous as GameStop for traders to benefit from a short squeeze. Recently Longeveron, Inc. (LGVN) reported positive news related to its treatment of a potentially fatal heart condition in infants. That news helped attract investors and social media attention, quickly sending the stock price from the single digits to a high of $45 dollars, likely due in part to a short squeeze.

Longeveron LGVN short squeeze 2021
Longeveron (LGVN) short squeeze chart from late 2021. Courtesy of Tradingview.com.

So if you’ve ever wondered who is buying a stock when its price is rising to illogical heights, the answer is probably related to short selling.

How is Short Interest related to Stock Float?

Short interest is often reported as “Short Percentage of Float.” It is a ratio calculated by dividing the number of shares sold short by the number of shares in the float, which is generally thought of as the amount of shares available to the general public for trading. For example, if 1 million shares have reportedly been sold short, and there are 20 million shares in the float, the short percentage would be 5%. Clearly, the lower the float, the greater the short interest becomes. If the number of shares in the float in the above example drops to 10 million, the short percentage becomes 10%.

Using Short Interest to Trade

Short interest is considered to be a quick way to gauge trader sentiment in a stock. The higher the short interest, the more likely traders feel the stock price may go lower. But a high short interest doesn’t necessarily mean that the share price will fall – only that investors are wagering it will. And as discussed above, you never know if a stock with a high short interest will suddenly get enough attention to trigger a short squeeze.

With those thoughts in mind, you can incorporate short interest into your trading several ways. If you like high volatility, you could look for low float stocks with a high short interest and increasing social media chatter. Those circumstances could help give rise to a short squeeze as seen with LGVN. A less volatile approach would be to track your favorite stocks and note whether the short interest has been decreasing over time. That may indicate a growing investor sentiment that the share price will increase in the future.

Outstanding Shares Information

The outstanding shares are the total number of shares that a company has issued and includes the shares that are available for trading as well as restricted shares. Outstanding shares are not necessarily equal to authorized shares. Authorized shares are set in a company’s articles of incorporation and represent the maximum amount of shares a company is allowed to issue to investors. The actual shares that a company does issue makes up the outstanding shares. Thus, when you think of outstanding shares vs. authorized shares, think of the former as a subset of the latter. Similarly, the shares that are available for trading make up the float, which is a subset of the outstanding shares. As we’ve previously discussed throughout this site, a low float stock can experience explosive movements in price. Sometimes when a stock is in play and seeing a lot of interest from traders, the float may not be reported when you check your favorite financial website. In that case, you can look at the outstanding shares to give you a sense of the number of shares in the float. For example, if the stock page shows outstanding shares of 12 million, it stands to reason that the float is below 12 million shares. After all, the float is considered part of the outstanding shares so it shouldn’t exceed that number. In this example, many investors would consider a float below 12 million shares as a low float stock.

Conclusion

The short percentage of float, or short interest, can be a useful indicator for measuring investor sentiment or finding potential short squeezes. We added short interest and outstanding shares to help all traders find this information quickly and easily. Hopefully you can find ways to incorporate this data into your trading plan each day.