I suppose thats one way to look at it. Stocks are hard to borrow because they have a tiny float. Another way to look at it is I was experimenting with a new strategy and got caught out and held PALI way too long. I said meh and just held it waiting for the price to eventually head north. If IBKR came to me and wanted to borrow those shares to loan to a short seller and were offering me 500% interest to do so I'd be a fool to turn that down now wouldn't I? The shares are just sitting there,might as well let them earn you some money while sitting there.
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how much do you get actually lending out short if you own shares?
- Thread starter klattermusen
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If IBKR came to me and wanted to borrow those shares to loan to a short seller and were offering me 500% interest
That'll happen right after you get run over by a Porsche driven by a zebra.
As a short seller, the best you can do is 100%. If you sell short at $100 and it goes to zero you make $100. Paying 500% is a guaranteed loser.
The only way I can imagine 500% is a short squeeze, but
1) For someone to pay 500% to borrow would still mean borrowing for 5x the price the stock is trading at. Even in a short squeeze, if someone just completed a transaction for $100 a share, I've got to believe there are willing sellers before you get to $500. Plus borrowing to return shares to someone is less valuable than buying the shares because it just moves the problem of needing to buy the shares to the future. So you'd actually be willing to go MORE than 5x the price rather than pay 500% interest.
2) We're not allowed to have short squeezes anymore. GameStop showed that the industry players will (apparently) collude to rig trading, rather than be forced to pay the elevated price for shares that they are supposed to pay to cover the obligations of their newly bankrupt client.
Stocks are hard to borrow because they have a tiny float.
Big float, small float, people only borrow if they think it's going down.
Explain to me a plausible scenario where someone is willing to pay 30% to borrow without being damn sure the price is going to crash. Maybe there's a scenario I'm missing.
Wow,that post is all over the map,I dont even know where to begin. Explain to me the plausible scenario why 59% of WINT's float is held short and those short sellers are paying 800% to short it? In fact a quick check of some of the most heavily shorted stocks are charging exorbitant fees as well,IVP 650% fee with 54% of the float held short,TIRX charging 250% with 44% held short. In your first post you claim stocks "are hard to borrow because of short interest". I dont think so. They're hard to borrow because your broker simply has trouble finding the shares to loan so he's making you pay for that fact(not to mention the added risk/volatility). Those exorbitant fees are the effect, not the cause.That'll happen right after you get run over by a Porsche driven by a zebra.
As a short seller, the best you can do is 100%. If you sell short at $100 and it goes to zero you make $100. Paying 500% is a guaranteed loser.
The only way I can imagine 500% is a short squeeze, but
1) For someone to pay 500% to borrow would still mean borrowing for 5x the price the stock is trading at. Even in a short squeeze, if someone just completed a transaction for $100 a share, I've got to believe there are willing sellers before you get to $500. Plus borrowing to return shares to someone is less valuable than buying the shares because it just moves the problem of needing to buy the shares to the future. So you'd actually be willing to go MORE than 5x the price rather than pay 500% interest.
2) We're not allowed to have short squeezes anymore. GameStop showed that the industry players will (apparently) collude to rig trading, rather than be forced to pay the elevated price for shares that they are supposed to pay to cover the obligations of their newly bankrupt client.
Big float, small float, people only borrow if they think it's going down.
Explain to me a plausible scenario where someone is willing to pay 30% to borrow without being damn sure the price is going to crash. Maybe there's a scenario I'm missing.
59% of WINT's float is held short and those short sellers are paying 800% to short it?
Can you prove that anybody actually paid that much, or is one vendor just listing an absurdly high "go away, I don't want to deal with this" price?
Just because someone offers something at a given price doesn't mean anyone is buying it from them.
Explain one scenario in which someone paying more than 100% to borrow a stock actually makes money.
I wouldn't pay it myself but apparently there are traders who think they have a strategy that can make money even while paying exorbitant SLB fees. My beef is when you said a stock is hard to borrow because of high short interest. MAXN is one of the most heavily shorted stocks(80% of float) and yet its extremely easy to borrow and fairly cheap to do so. Its all about share availability that makes stocks hard to borrow.Explain one scenario in which someone paying more than 100% to borrow a stock actually makes money.
I wouldn't pay it myself but apparently there are traders who think they have a strategy that can make money even while paying exorbitant SLB fees.
Can you name one?
It's pretty obvious that paying over 100% is a guaranteed loser. (Noting that I mean 100% over the term of the loan.)
My beef is when you said a stock is hard to borrow because of high short interest.
Short interest is the driver. No short, no borrow.
80% of float
The float is not the same as the number of shares able to be borrowed. For example an employee stock plan might provide matching shares to an employee after a certain holding period. Those shares are not actively being traded but the company administering the plan might be making 50% of their income by loaning other people's shares.
That was a specific case, but more generally, just because the shares aren't being traded, don't assume they aren't being loaned.
In the case of MAXN, I wouldn't be surprised if insiders and institutions are loaning their shares. That could massively increase the available borrowable shares and explain the low cost.
The way I see it, the drivers are:
1) The expected amount of the drop in price
2) The level of certainty of that drop.
People will short until it is no longer profitable to do so. The amount of borrowable shares (not the same as the float) just sets how many people can get in on the deal.
Sure, I recognize it's a market and there are differences of opinion, but not many are going to say "let's enter a trade that is guaranteed to lose money."
The fact remains in real world applications I've seen no correlation between how heavily a stock is shorted and how hard or easy it is to short. I can take one look at a stock's float size and tell you whether or not shares are available for a retail trader to short it. I know before I even check with IB.
I've seen no correlation between how heavily a stock is shorted and how hard or easy it is to short.
In that case I would question whatever metric you are using to determine "how heavily a stock is shorted".
It sounds like a bogus metric.
These are items that should obviously be correlated. Zero correlation is ridiculous.
The short borrow rates are annualized rates, so if you borrow a 360% rate stock for one day (and not Thursday) you’d pay 1% of the market value. That’s definitely manageable if you think you have an edge in trading that stock from the short side. Wait too long or get caught in a short squeeze, and you’re probably losing now regardless of what you do.It's pretty obvious that paying over 100% is a guaranteed loser. (Noting that I mean 100% over the term of the loan.)