CNSI: Insiders vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 07/31/2014 settlement date, and Comverse Inc (CNSI) is one of the most shorted stocks of the Russell 3000, based on 8.07 "days to cover" versus the median component at 6.30. 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 Comverse Inc ( CNSI), the total short interest at the 07/31/2014 settlement date was 833,012 shares, which compares to the average daily trading volume of just 103,209 shares, for a "days to cover" ratio of 8.07.

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 CNSI share traded represented a short position being closed, then at the average daily volume of 103,209 shares it would only be during the 9th 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 9 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.

Comverse Inc ( CNSI) 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, CNSI has seen 7 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
06/12/2014 Matthew A. Drapkin Director 97,945 $23.63 $2,313,986.87
06/11/2014 Henry R. Nothhaft Director 25,000 $23.50 $587,607.50
06/12/2014 Shawn C. Rathje CAO 1,500 $23.45 $35,175.00
06/11/2014 Philippe Tartavull President and CEO 4,300 $23.09 $99,275.39
06/11/2014 Roy S. Luria SVP, Gen.Csl. and Corp. Secy 420 $23.58 $9,902.34
06/12/2014 Thomas B. Sabol SVP and CFO 3,000 $23.66 $70,981.20
06/13/2014 Nassrin Tavakoli SVP, CTO and R&D 1,000 $24.45 $24,449.20

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

Loading+chart++2014+TickerTech.com

And looking at the chart below, CNSI's low point in its 52 week range is $22.00 per share, with $40.30 as the 52 week high point — that compares with a last trade of $25.00.

Comverse Inc Moving Averages Chart

In recent trading, shares of Comverse Inc ( CNSI) were changing hands at $25.00/share.

More from Stocks

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

Flashback Friday: The Market Movers

Flashback Friday: The Market Movers