Bob's Daily Buzzword: `Days to Cover'

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Sept. 6 (Bloomberg) -- Bob Rice, general managing partner with Tangent Capital Partners LLC, explains "Days to Cover." (Source: Bloomberg)

Welcome back to "money moves ." bob rice is here from tangent capital partners.

Days to cover relates to short interest in a stock.

Also known as the short interest ratio.

We take the number of shares that have been borrowed.

We divide that by the average daily volume.

That gives us a number of days in principle but it would take to buy back enough shares to cover the short.

The higher the number, the greater the negative sentiment?

Exactly.

A lot of people say -- most short-sellers are sophisticated people.

If you see a stock that is days to cover, and what are people like to say, maybe i should be shorting that stock, or maybe i should be buying puts on that stock.

They like to watch the ratio for that reason.

There can be a downside to it.

I know you took an example for us, which was nokia.

We were covering this news.

The handset business, and patents being purchased a microsoft.

You see what happens.

You're feeling pretty good about your short at 8-12. -- 8:12. short interest group hugely.

-- grew hugely.

And then, boom.

It turned into a short squeeze as soon as that news hit the market.

So we see the spike.

What does it mean as far as dollar losses?

$850 million, mostly to large, well-known hedge funds.

Maverick was in the deal.

It was a perfect example -- they only wind up having one day to cover.

But strategically, you can understand -- i'm not trying to make excuses for hedge funds.

Nokia has been a weak link for a long time, so it is understandable that somebody would put on a trade that says, i don't believe in this prospect.

Absolutely.

It was a pretty good trade for a long time.

This happens a lot.

We were having fun, so we got hurt.

[laughter] exactly.

Corporate management finally has to do something, such as agreed to merge with someone.

The short squeeze is not necessarily an indication of anything in particular.

It is one of many tools you can use.

That is right.

You do have to remember that all those shorts have to be bonded back at some time.

In that sense, an extremely high short interest ratio that can be bullish.

Thank you very much.

Bob rice from tangent capital partners joining us.

This text has been automatically generated. It may not be 100% accurate.

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