AAOI: Insiders vs. Shorts

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In the case of Applied Optoelectronics Inc (AAOI), the total short interest at the 08/15/2016 settlement date was 3,714,467 shares, which compares to the average daily trading volume of just 441,449 shares, for a "days to cover" ratio of 8.41.

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 AAOI share traded represented a short position being closed, then at the average daily volume of 441,449 shares it would only be during the 9th 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 9 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.

Applied Optoelectronics Inc (AAOI) 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, AAOI has seen 3 different instances of insider buying, as summarized by the table below:

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

And looking at the chart below, AAOI's low point in its 52 week range is $8.08 per share, with $22.40 as the 52 week high point — that compares with a last trade of $17.05.

In recent trading, shares of Applied Optoelectronics Inc (AAOI) were changing hands at $17.05/share.