SSF discount

[bigspeculate]

http://www.onechicago.com/?p=811

This site shows single stock futures trading at significant discount to the cash price.
Why would a SSF on Yelp trade for a dollar less than cash?

 

[OneChicago]

Quote from bigspeculate:

http://www.onechicago.com/?p=811

This site shows single stock futures trading at significant discount to the cash price.
Why would a SSF on Yelp trade for a dollar less than cash?

YELP is a Hard-to-Borrow stock. The fees paid to borrow the stock are priced into the SSF as a negative interest rate. This negative rate acts to depress the value of the SSF.

As expiration approaches the impact of the negative rate gets reduced and upon expiry the SSF will equal the Stock price.

In short: welcome to Securities Lending.

Best

 

[noob_trad3r]

Is there a dummies guide to SSF. like how could I do this with stock in my brokerage account.

 

[OneChicago]

Quote from noob_trad3r:

Is there a dummies guide to SSF. like how could I do this with stock in my brokerage account.

www.onechicago.com has a great deal of info on SSF.

I recently hosted a number of discussions with members of the media that deal with financial transactions. The powerpoint I used is here:

http://www.onechicago.com/wp-conten...Chicago-An-Equity-Finance-Exchange-201206.pdf

It might be of some assistance.

Best

 

[bigspeculate]

If I go long the ssf to capture the discount, I'm exposed to the downside. Could I hedge by shorting the next month ssf, or using options?

 

[OneChicago]

Quote from bigspeculate:

If I go long the ssf to capture the discount, I'm exposed to the downside. Could I hedge by shorting the next month ssf, or using options?

Very risky. To hedge a purchase of a discounted future you must get short Delta somewhere. If you choose the underlying stock you will need to borrow it and subject yourself to paying the rebate.

If you choose options or another longer dated SSF you will find similar distortions in the pricing.

The real benefit is to those who are 1. Looking to establish a long term position in the underlying stock and would like to 'purchase' it cheaper now via the discounted SSF and take delivery upon expiry. 2. Who are long the stock now and would like to capture some of the rebate priced into the SSF. This is done via an EFP transaction where you are simply swapping the relatively expensive Stock for a comparatively cheaper Delta equivalent SSF.

Be aware this may have tax implications on the sale of the stock leg. For those having the long stock position in an IRA account (which is tax exempt) and do not do so many transactions as to appear to be a business may not have a tax issue. PLEASE discuss with a tax accountant or financial advisor.

Best

 

[Daal]

OneChicago, what happens if you short a SSF in a extremely hard to borrow stock and the future expires, do you ALWAYS get assigned the short position?Who usually own the shares that are assigned to you?

I basically want to know if its possible to not get the short because shares were not located or get the short but get bought-in shortly after

 

[ScroogeMcDuck]

You have to deliver one way or another, so if you can't locate shares to borrow you have to buy in.

 

[Daal]

Quote from Daal:

OneChicago, what happens if you short a SSF in a extremely hard to borrow stock and the future expires, do you ALWAYS get assigned the short position?Who usually own the shares that are assigned to you?

I basically want to know if its possible to not get the short because shares were not located or get the short but get bought-in shortly after

OneChicago, please respond

 

[comintel]

BTW I found that the bid - ask spreads on most SSF's were too wide for my purposes.

It is also hard/impossible to get executions other than by paying the full bid or ask.