Looking for Explosive Moves? Check the Short-Interest Table

by Daniel Putnam | September 21, 2012 7:30 am

If you’re a trader who’s looking for volatility, the short-interest table is a veritable candy store of investment candidates. But beware: Most of the names on the list might prove to be an all-or-nothing bet.

The impetus for this look at short interest comes from Bespoke Investment Group’s blog. On Tuesday, Bespoke published a list of the S&P 1500 stocks with the largest short interest [1]as a percent of float. A look at this 30-stock list leads to the question: Is this group fertile ground for stocks that could perform well in the next three months because of the potential for a short squeeze?

For an answer, investors can look back to the same list published on Bespoke’s blog on June 27[2], and measure the performance of the stocks since that time.

The most notable aspect of the results, which can be viewed here[3], is that almost every stock on the list has provided a massive performance differential relative to the S&P 500. Here are some of the notable highlights from the data*:

This type of differential is consistent with what one could expect from the short-interest list. By its very nature, it will contain a number of companies that are subject to binary events that can lead to big moves in their stock prices. This leads to the next question, at least for those not inclined to employ option strangles: Is there any way to identify the direction of the volatility?

Based on the high-short-interest stocks from June, there might be a rough indication of what will happen next based on what occurred in the prior three months:

The conclusion, at least from this small sample, is that the short-interest list provides fertile ground to find stocks likely to stage a reversal from their current trend.

What stocks might be vulnerable to such a reversal now? For candidates, see the table below, which shows the returns of the stocks on the current Bespoke list over the prior three months through Sept. 19. During the same period, the S&P 500 rose 7.59%.

STOCK RETURN 6/19-9/19 STOCK RETURN 6/19-9/19
SPPI[5] -6.4% SPF[6] 34.4%
OPEN[7] 4.3% BKS[8] -16.3%
FSLR[9] 54.2% OSG[10] -33.7%
KBH[11] 54.6% DGIT[12] -7.1%
AM[13] 3.7% GMCR[14] 45.3%
RGR[15] 35.7% RBCN[16] 9.0%
RSH[17] -34.1% DECK[18] -14.0%
QCOR[19] -48.9% AKS[20] 3.9%
JCP[21] 30.7% VCI[22] 33.9%
DMND[23] 8.6% COCO[24] -0.4%
SVU[25] -47.6% SKS[26] 6.1%
GME[27] 25.9% SWY[28] -6.2%
ONE[29] 19.2% ESI[30] -30.1%
SAM[31] -5.8% CSTR[32] -26.2%
EBIX[33] 37.1% NFLX[34] -18.3%

However, keep in mind that the analysis above incorporates just 30 stocks and one time period, and that the results from this group could be much different from what occurred with the group discussed above. Still, it can provide traders with a starting point for further investigation.

* It’s important to note that there is a lag between the date of the short interest and the publication of the report. Since the report lags, this analysis utilizes the date the information becomes available to investors.

As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.

Endnotes:
  1. S&P 1500 stocks with the largest short interest : http://www.bespokeinvest.com/thinkbig/2012/9/18/sp-1500-stocks-with-the-highest-short-interest.html
  2. same list published on Bespoke’s blog on June 27: http://www.bespokeinvest.com/thinkbig/2012/6/27/30-over-30-stocks-with-the-highest-short-interest.html
  3. which can be viewed here: http://investorplace.com/wp-content/uploads/2012/09/Table10920.jpg
  4. SVNT: http://studio-5.financialcontent.com/investplace/quote?Symbol=SVNT
  5. SPPI: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPPI
  6. SPF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPF
  7. OPEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=OPEN
  8. BKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=BKS
  9. FSLR: http://studio-5.financialcontent.com/investplace/quote?Symbol=FSLR
  10. OSG: http://studio-5.financialcontent.com/investplace/quote?Symbol=OSG
  11. KBH: http://studio-5.financialcontent.com/investplace/quote?Symbol=KBH
  12. DGIT: http://studio-5.financialcontent.com/investplace/quote?Symbol=DGIT
  13. AM: http://studio-5.financialcontent.com/investplace/quote?Symbol=AM
  14. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  15. RGR: http://studio-5.financialcontent.com/investplace/quote?Symbol=RGR
  16. RBCN: http://studio-5.financialcontent.com/investplace/quote?Symbol=RBCN
  17. RSH: http://studio-5.financialcontent.com/investplace/quote?Symbol=RSH
  18. DECK: http://studio-5.financialcontent.com/investplace/quote?Symbol=DECK
  19. QCOR: http://studio-5.financialcontent.com/investplace/quote?Symbol=QCOR
  20. AKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=AKS
  21. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  22. VCI: http://studio-5.financialcontent.com/investplace/quote?Symbol=VCI
  23. DMND: http://studio-5.financialcontent.com/investplace/quote?Symbol=DMND
  24. COCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=COCO
  25. SVU: http://studio-5.financialcontent.com/investplace/quote?Symbol=SVU
  26. SKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=SKS
  27. GME: http://studio-5.financialcontent.com/investplace/quote?Symbol=GME
  28. SWY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SWY
  29. ONE: http://studio-5.financialcontent.com/investplace/quote?Symbol=ONE
  30. ESI: http://studio-5.financialcontent.com/investplace/quote?Symbol=ESI
  31. SAM: http://studio-5.financialcontent.com/investplace/quote?Symbol=SAM
  32. CSTR: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSTR
  33. EBIX: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBIX
  34. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX

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