For some time, I've been developing a working theory around how to spot and take advantage of the "buy to close" activity of short side market players.
Shorting is inherently a difficult endeavor. Unlike long only players, shorts have additional variables to contend with: borrow fees, short squeeze risk, and the return max of +100% (if something goes to 0).
For the purpose of this analysis, we will limit our interest to using available data to identify a potential entry and exit of such a position ( prior to publication, 13K reporting, etc. )
Short Volume is available on a daily basis but Short Open Interest is only published bi-monthly with approximately a 14/15 day lag.
In the following chart we attempt to deduce a logic entry and exit point based on the abundance of short volume & price action during those time periods:
(every rally was sold during entry and every dip was used to cover on the exit)
Additional price action support for this perspective is the relative instability of both rallies and dips ( long wicks ) showing that the price action was purely transaction driven as the short actor attempted to skillfully enter and exit their large position while appearing as "noise".
Shorting is inherently a difficult endeavor. Unlike long only players, shorts have additional variables to contend with: borrow fees, short squeeze risk, and the return max of +100% (if something goes to 0).
For the purpose of this analysis, we will limit our interest to using available data to identify a potential entry and exit of such a position ( prior to publication, 13K reporting, etc. )
Short Volume is available on a daily basis but Short Open Interest is only published bi-monthly with approximately a 14/15 day lag.
In the following chart we attempt to deduce a logic entry and exit point based on the abundance of short volume & price action during those time periods:
(every rally was sold during entry and every dip was used to cover on the exit)
Additional price action support for this perspective is the relative instability of both rallies and dips ( long wicks ) showing that the price action was purely transaction driven as the short actor attempted to skillfully enter and exit their large position while appearing as "noise".