Hard-to-borrow call-put arb

H

heech

Here's another one of those stocks that people are dying to short, leading to huge put/call arb numbers:

NAT, trading $36.50
June 35 call: $2.20
June 35 put: $3.20

Borrowing costs as per IB: 50.25%.
 
Quote from heech:
......one of those stocks that people are dying to short
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Do you believe that there is "free money" to be made in the stock and/or its options? :cool:
 
Quote from heech:

Here's another one of those stocks that people are dying to short, leading to huge put/call arb numbers:

NAT, trading $36.50
June 35 call: $2.20
June 35 put: $3.20

Borrowing costs as per IB: 50.25%.
More...

Glad you figured out the borrowing cost before jumping in. Spin is glad too - saves him from having to read my hard-to-borrow arb story again!
 
Quote from dmo:

Glad you figured out the borrowing cost before jumping in. Spin is glad too - saves him from having to read my hard-to-borrow arb story again!
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Au contraire mon ami. I think that your hard-to-borrow arb story is very co, co, coh, coheh. cohare, coheer, cohairant ! :)

My borrowing pound of flesh last month was just short of $500. And I did that voluntarily :eek:
 
Quote from dmo:

Glad you figured out the borrowing cost before jumping in. Spin is glad too - saves him from having to read my hard-to-borrow arb story again!
More...


hi. dmo, could you post your link to the above reference.

I also use IB and I was unaware that there are borrowing costs other than the quoted option price. for certain STOCKS.

does IB specifically mention these costs before we initiate the transaction. for the given stock ?


also, I have been shorting some hard to borrow stocks.(NILE) in IB and so far dont see any borrowing costs fees. I will double check with them Monday.
 
Quote from darwin666:

hi. dmo, could you post your link to the above reference.

I also use IB and I was unaware that there are borrowing costs other than the quoted option price. for certain STOCKS.

does IB specifically mention these costs before we initiate the transaction. for the given stock ?


also, I have been shorting some hard to borrow stocks.(NILE) in IB and so far dont see any borrowing costs fees. I will double check with them Monday.
More...

No, IB mentions nothing. That was the point of those threads - how opaque IB is about the high borrow costs. The main thread was http://www.elitetrader.com/vb/showthread.php?s=&threadid=134814 - also some followup in http://www.elitetrader.com/vb/showthread.php?s=&threadid=161439
 
Quote from stock777:

Still , isnt the cost of carry less than the arb?
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Only a little bit, and it's not clear at all you'll get anything after commissions.

C + K = S + P

So... in the above case: $2.20 + $35 != $36.50 + $3.20...

... there's a free $250 in it for you if you:

- sell 1 put contract (+$320)
- buy 1 call contract (-$220)
- short 100 shares ($3650)
- And hold until expiration (-$3500 at that point).

If stock ends above strike, you can use the call to close out the short. If stock ends below strike, the put will be exercised and closed out the short.

The problem is borrowing $3650 at 50% annual. I think that rate is the simple rate... with about 6 weeks to go, that means borrowing cost is ~$210. Throw in commissions, *and* throw in the risk that borrowing cost on NAT can go even higher over the next 5 weeks... there's really nothing there.
 
Quote from dmo:

No, IB mentions nothing. That was the point of those threads - how opaque IB is about the high borrow costs. The main thread was http://www.elitetrader.com/vb/showthread.php?s=&threadid=134814 - also some followup in http://www.elitetrader.com/vb/showthread.php?s=&threadid=161439
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Yep, those threads alone make EliteTrader a worthwhile exercise for me. I had *no* idea that was an issue until I came across them.

Now, I check borrowing costs for my short positions every day, ready to close out if needed.
 
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