NES: Insiders vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 11/14/2014 settlement date, and Nuverra Environmental Solutions, Inc. (NES) is one of the most shorted stocks of the Russell 3000, based on 11.29 "days to cover" versus the median component at 5.85. 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 Nuverra Environmental Solutions, Inc. ( NES), the total short interest at the 11/14/2014 settlement date was 5,367,634 shares, which compares to the average daily trading volume of just 475,477 shares, for a "days to cover" ratio of 11.29.

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 NES share traded represented a short position being closed, then at the average daily volume of 475,477 shares it would only be during the 12th 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 12 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.

Nuverra Environmental Solutions, Inc. ( NES) 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, NES has seen 5 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
09/04/2014 Joseph M. Crabb Exec. VP & Chief Legal Officer 5,000 $13.18 $65,900.00
09/05/2014 Mark D. Johnsrud See Remarks 124,551 $13.70 $1,706,549.31
09/05/2014 Joseph M. Crabb Exec. VP & Chief Legal Officer 5,000 $13.61 $68,050.00
09/12/2014 Tod C. Holmes Director 7,000 $14.68 $102,760.00
11/13/2014 Mark D. Johnsrud See Remarks 50,000 $8.07 $403,375.00
11/13/2014 Ralph Daniel Nelson Director 1,275 $7.82 $9,967.95
11/14/2014 Mark D. Johnsrud See Remarks 50,000 $8.55 $427,300.00
11/17/2014 Mark D. Johnsrud See Remarks 25,000 $8.52 $212,950.00
11/18/2014 Mark D. Johnsrud See Remarks 50,000 $8.44 $422,050.00
11/19/2014 Mark D. Johnsrud See Remarks 16,315 $8.01 $130,759.83
11/24/2014 Alfred E. Osborne Jr. Director 5,000 $9.34 $46,701.00
11/25/2014 Mark D. Johnsrud Chairman of the Board and CEO 4,100 $11.42 $46,809.70
11/26/2014 Joseph M. Crabb See Remarks 3,500 $10.39 $36,382.50

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

Loading+chart++2014+TickerTech.com

And looking at the chart below, NES's low point in its 52 week range is $7.72 per share, with $21.29 as the 52 week high point — that compares with a last trade of $8.25.

Nuverra Environmental Solutions, Inc. Moving Averages Chart

In recent trading, shares of Nuverra Environmental Solutions, Inc. ( NES) were changing hands at $8.25/share.

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