Short Covering

Short covering refers to the process by which traders who have sold shares short — borrowing them to sell with the intention of repurchasing at a lower price — buy back those shares to close their short positions. Short covering can be driven by profit-taking (when the target price is reached), stop-loss triggers (when the trade moves against the short seller), or forced buying caused by a margin call. When a large number of short sellers cover simultaneously, their collective buying pressure can cause a rapid, sharp price surge known as a short squeeze. In Indian equity and F&O markets, short covering is particularly common on the last day before futures expiry, when traders close out short futures positions. Monitoring short interest data — available through NSE's daily futures and options position reports — helps identify stocks with heavy short positions that are vulnerable to covering-driven rallies.