AVP: Insiders vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 04/15/2014 settlement date, and Avon Products, Inc. (AVP) is the #74 most shorted of the S&P 500 components, based on 5.93 "days to cover." 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 Avon Products, Inc. ( AVP), the total short interest at the 04/15/2014 settlement date was 26,622,118 shares, which compares to the average daily trading volume of just 4,487,355 shares, for a "days to cover" ratio of 5.93.

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 AVP share traded represented a short position being closed, then at the average daily volume of 4,487,355 shares it would only be during the 6th trading day that every short position would be closed.

So it would stand to reason that should some unexpectedly good news come out, and short sellers did not have 6 days of patience but instead wanted to cover their short positions very suddenly, that situation could result in sending the stock higher until the higher price produces enough sellers to generate the necessary volume to close out those positions quickly.

Avon Products, Inc. ( AVP) has something relatively rare for a stock with this much short interest, that being insiders taking the other side of the trade. Looking back over the trailing six month period, AVP has seen 7 different instances of insider buying, as summarized by the table below:

Purchased	Insider	Title	Shares	Price/Share	Value
05/05/2014	John Higson	Senior Vice President	3,035	$13.50	$40,972.50
05/07/2014	Douglas R. Conant	Director	37,464	$13.34	$499,769.76
05/08/2014	Paula Stern	Director	100	$13.35	$1,335.00
05/08/2014	Sara Mathew	Director	7,500	$13.33	$99,975.00
05/07/2014	Maria Elena Lagomasino	Director	7,473	$13.36	$99,839.28
05/08/2014	W. Don Cornwell	Director	2,120	$13.37	$28,334.00
05/06/2014	Pablo Munoz	Senior Vice President	6,664	$13.42	$89,430.88

Below is a chart showing the "days to cover" for AVP over time:

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And looking at the chart below, AVP's low point in its 52 week range is $13.22 per share, with $24.71 as the 52 week high point — that compares with a last trade of $13.39.