RT: Insiders vs. Shorts

The most recent short interest data was recently released for the 10/31/2016 settlement date, and Ruby Tuesday, Inc. ( RT) is one of the most shorted stocks of the Russell 3000, based on 7.12 "days to cover" versus the median component at 6.43. 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 Ruby Tuesday, Inc. ( RT), the total short interest at the 10/31/2016 settlement date was 4,375,376 shares, which compares to the average daily trading volume of just 614,293 shares, for a "days to cover" ratio of 7.12.

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 RT share traded represented a short position being closed, then at the average daily volume of 614,293 shares it would only be during the 8th 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 8 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.

Ruby Tuesday, Inc. ( RT) 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, RT has seen 9 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
10/11/2016 Linda Sue Briley Chief Financial Officer 7,500 $2.70 $20,250.00
10/11/2016 Thomas Anderson Williams Chief People Officer 10,000 $2.66 $26,600.00
10/11/2016 David Skena SVP, Chief Marketing Officer 5,000 $2.65 $13,270.00
10/12/2016 Jeffrey J. O'neill Director 7,140 $2.81 $20,054.12
10/11/2016 F. Lane Cardwell Jr. Interim CEO 50,000 $2.75 $137,320.00
10/11/2016 Rhonda J. Parish Chief Legal Officer and Secy 10,000 $2.79 $27,862.00
10/11/2016 Kevin T. Clayton Director 24,000 $2.64 $63,264.00
10/11/2016 Donald E. Hess Director 120,300 $2.70 $325,353.69
10/12/2016 Stephen I. Sadove Director 22,800 $2.77 $63,087.63
10/13/2016 Stephen I. Sadove Director 18,337 $2.79 $51,070.38

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

Loading+chart++2016+TickerTech.com

And looking at the chart below, RT's low point in its 52 week range is $2.08 per share, with $5.77 as the 52 week high point — that compares with a last trade of $3.06.

Ruby Tuesday, Inc. Moving Averages Chart

In recent trading, shares of Ruby Tuesday, Inc. ( RT) were changing hands at $3.06/share.

If you liked this article you might like

3 Investment Ideas That Sadly Didn't Follow My Script

3 Investment Ideas That Sadly Didn't Follow My Script

Activist Investor Says Potbelly Is Taking Too Long to Sell Itself

Activist Investor Says Potbelly Is Taking Too Long to Sell Itself

These Are the Biggest Winners and Losers in Activist Investing This Year

These Are the Biggest Winners and Losers in Activist Investing This Year

3 More Restaurant Names Worth Chewing Over

3 More Restaurant Names Worth Chewing Over

Buffalo Wild Wings Sale Hints Some Other Big Restaurant Deals Are Lurking

Buffalo Wild Wings Sale Hints Some Other Big Restaurant Deals Are Lurking