SGM: Insiders vs. Shorts

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In the case of Stonegate Mortgage Corporation (SGM), the total short interest at the 01/15/2016 settlement date was 1,092,872 shares, which compares to the average daily trading volume of just 113,981 shares, for a "days to cover" ratio of 9.59.

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 SGM share traded represented a short position being closed, then at the average daily volume of 113,981 shares it would only be during the 10th 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 10 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.

Stonegate Mortgage Corporation (SGM) 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, SGM has seen 3 different instances of insider buying, as summarized by the table below:

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

And looking at the chart below, SGM's low point in its 52 week range is $3.62 per share, with $11.60 as the 52 week high point — that compares with a last trade of $3.82.

In recent trading, shares of Stonegate Mortgage Corporation (SGM) were changing hands at $3.82/share.