OCR: Insiders vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 07/15/2014 settlement date, and Omnicare Inc. (OCR) is one of the most shorted stocks of the Russell 3000, based on 13.74 "days to cover" versus the median component at 6.58. 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.

START SLIDESHOW:
Ten Bargains You Can Buy Cheaper Than The Insiders Did »

In the case of Omnicare Inc. ( OCR), the total short interest at the 07/15/2014 settlement date was 10,113,252 shares, which compares to the average daily trading volume of just 736,124 shares, for a "days to cover" ratio of 13.74.

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 OCR share traded represented a short position being closed, then at the average daily volume of 736,124 shares it would only be during the 14th 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 14 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.

Omnicare Inc. ( OCR) 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, OCR has seen 2 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
04/30/2014 Nitin Sahney President & COO 10,000 $58.49 $584,900.00
05/06/2014 Robert O. Kraft SVP & Chief Financial Officer 1,500 $60.00 $90,000.00

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

Loading+chart++2014+TickerTech.com

And looking at the chart below, OCR's low point in its 52 week range is $52.26 per share, with $67.49 as the 52 week high point — that compares with a last trade of $61.93.

Omnicare Inc. Moving Averages Chart

In recent trading, shares of Omnicare Inc. ( OCR) were changing hands at $61.93/share.

More from Stocks

Dow Gets Swept Into Nasty Reversal Even as Nasdaq Posts New Record

Dow Gets Swept Into Nasty Reversal Even as Nasdaq Posts New Record

REPLAY: Jim Cramer on Fed Rate Hikes, Oil Prices and Starbucks Worries

REPLAY: Jim Cramer on Fed Rate Hikes, Oil Prices and Starbucks Worries

What Will GM Do With Cruise -- and Is Its Stock Worth $55?

What Will GM Do With Cruise -- and Is Its Stock Worth $55?

3 Must Reads on the Market From TheStreet's Top Columnists

3 Must Reads on the Market From TheStreet's Top Columnists

This Should Be Your Retirement Savings Plan When the Stock Market Crashes

This Should Be Your Retirement Savings Plan When the Stock Market Crashes