how to bet against weak shorts
traders often look for stocks with heavy short interest a contrarian indicator to identify stocks poised to move up on a short squeeze stocks that are heavily shorted by retail investors are better short squeeze candidates than those held by institutions with deep pockets such as hedge funds one way to identify retail short interest is by using trading software that shows major holders of the stock and block trades a stock with a minimal institutional holdings b few block trades and c significant short interest is likely to be one with a disproportionate number of weak shorts traders can wait for the price to strengthen potentially moving above a key resistance level where many short trade stop loss orders are placed a trader initiates a long position in anticipation of a further rise as weak short traders are forced out of their position weak short vs the put call ratioputs are another way to bet on a declining stock price the put call ratio measures the number of puts bought versus the number of calls those that profit if the stock price rises the ratio indicates when traders have become extremely bearish or bullish on a stock this can be used as a contrarian indicator that a reversal in price may be forthcoming limitations of using weak shortsit is hard to predict the number of weak shorts and difficult to decipher if the short positions are held because the stock is falling whether weak shorts or not these traders are in the correct position to profit and buying into them may be foolish trying to force weak shorts out of a position causing a price pop may prop the price up temporarily but unless positive news fundamentals or technicals emerge additional buyers may not decide to enter and the price will continue to fall weak shorts are a strategy that can t be measured with great accuracy therefore it s unknown exactly how many weak shorts there are or how weak they are investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal 