Days to cover is a measurement of a company’s issued shares that are currently shorted, expressed as the number of days required to close out all the short positions. Beginning traders often think that days to cover means when the short position must be covered. It is NOT days until short sellers are forced to cover.
Days to cover is calculated by taking the number of currently shorted shares and dividing that amount by the average daily volume of the stock. For example, if company ABCD has an average daily volume of 2 million shares and 6 million shares are currently short sold, the days to cover metric is 3 days (6 million shares short ÷ average daily volume of 2 million shares = 3 days to cover).
A days to cover metric greater than 3 opens up the possibility of a short squeeze.<< Back to Glossary Index