Just wanted to share some potential information I discovered while looking at the historical data today. Now I am no statistician but the days to cover that everyone has been throwing around has been bothering me so I decided to do some research on what it means.
For those of you that do not know, days to cover is the time that it would take for short sellers to cover their short position( if the entire volume was only sellers of the stock) It is calculated by dividing the total number of shares shorted by the traded volume. Currently that number is 0.91. This is calculated by 152,000,000 short shares / 166,000,000 shares traded per day on average (that is buying and selling combined (the selling volume is about 10% of that)). The short shares number is an estimated number. Many people believe this number maybe even higher but it is difficult to know for sure. The average traded volume is calculated over the last 90 days.
Data History (Red Highlights are Outliers)
90 Day (Outliers removed) 30 Day
For reference anything above 1 is indicative of a short squeeze. This is because if you have to buy the entire traded volume to cover your short position a few things will happen.
- That is going to cause the price to increase dramatically
- The volume available to buy stocks is going to shrink as more people buy up available shares (remember traded volume is buying and selling)
- As the volume of stocks available to buy dries up, people holding can set the price of when they want to sell 🚀🌕and those who are short have to pay whatever the sellers asking price is (supply and demand)
Now u/spongebobrob already discussed how this number maybe inflated secondary to some really high volumes in January and the days to cover maybe even higher around the 1.8 range. Now I downloaded the data off of Yahoo Finance and looked at the averages for the past 90 days, I then removed outlier values in the past 90 days, Lastly i calculated the days to cover utilizing just the past 30 days.
What we see here, is that the days to cover by the actual 90 day average is close to 1.52 days while the average if we look at just the past 30 days is 2.83 days. This means that the extremely low volume that we have been having the past month is actually a good thing! Now I still think we have a ways to go before a squeeze happens but this is certainly reassuring to many of us. In the next week I expect the average 90 day trading volume to decrease significantly from 166 million to 100million as we move beyond the 1/27 - 2/1 spike in trades and continue to downtrend as long as the volume continues to decrease.
As we already know, even on low volume trading the buy volume is significantly larger than the sell volume. If the volume were to increase significantly I would expect the price to increase dramatically. All we have to do is continue to buy (to take up all available shares) and HOLD. If we do that I think we are all going to make the world a little more equitable for the common person, and screw over some greedy hedgies.
This is not financial advice, Please do your own DD. If I have made any mistakes someone please correct me. Data was pulled from https://finance.yahoo.com/quote/AMC/history?p=AMC
TLDR: Days to cover probably closer to 2.8 rather than 0.9 which means 🚀🚀🌕🌕