RH: Insiders vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 02/28/2014 settlement date, and Restoration Hardware Holdings, Inc. ( RH) is one of the most shorted stocks of the Russell 3000, based on 5.37 "days to cover" versus the median component at 4.15. There are a number of ways to look at short data, but one metric that we find particularly useful is the "days to cover" because it considers both the total shares short and the average daily volume of shares typically traded. The number of shares short is then divided by the average daily volume, to express the total number of trading days it would take to close out all of the open short positions if every share traded represented a short position being closed.

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In the case of Restoration Hardware Holdings, Inc. ( RH), the total short interest at the 02/28/2014 settlement date was 4,038,218 shares, which compares to the average daily trading volume of just 751,710 shares, for a "days to cover" ratio of 5.37.

When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. At the present levels of short interest, if from this point forward every single RH share traded represented a short position being closed, then at the average daily volume of 751,710 shares it would only be during the 6th trading day that every short position would be closed.

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