What is the benefit of lending out my stock shares at Fidelity or Schwab??

C

Cabin111

Just wondering if someone could give me a simple breakdown of the advantages and disadvantages of doing this?? Can it be done in Roth IRAs? Do I need to open separate accounts?? Can I still keep the stocks in a trust account?? When can I get back my stock?? Who collects the dividend if there is one??

I thought it was high flyer type stocks...Hard to borrow. But, if people are moving to value (safety), would those shares be attractive also??

This thread may want to be moved to "Retail Brokers".
 
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I am not familiar with those brokers, but I assume you are referring to the same thing that IBKR uses (Stock Yield Enhancement Program). So, if that is so....

Who collects the dividend if there is one??
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Technically, no one does when you are lending. The person borrowing your shares still owes you to make up for this, but they can't pay a legit dividend, so what happens is you are paid in-lieu of dividends. So you do get short-changed a little on your tax filing, because you won't get the normal discount as you'd get with legit dividends.

Honestly, you don't want to see your shares being borrowed much anyway, because people only borrow them when there is bad news on the horizon and smart-money is betting against you. It's like, wanting to make money on failing companies.
 
You can also get some negative tax treatment if you get a PIL payment instead of an actual dividend payment.

Edit... Oops someone beat me to the punch
 
The_Krakenite said:
Honestly, you don't want to see your shares being borrowed much anyway, because people only borrow them when there is bad news on the horizon and smart-money is betting against you. It's like, wanting to make money on failing companies.
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If smart money borrows my stock, I can use it as an indicator and immediately buy puts, No? :)
 
You COULD, but you'd have to buy at elevated premiums, and how are you going to get the timing right? What if it's another bluechip-to-enron?
 
I looked into Fidelity's "Fully Paid Lending Program" online. I put in my info and checked what could be lent. The only thing that came up was RVT (which has no options)!! I do many covered calls (way OTM for income). And, the RVT is in my Roth IRA...It could be a mess to create a separate account when I died to clear the loaned positions!! Yeah, open an estate account, then close it with $125.-$150. exit fee!!

If I wanted to do a covered call on a stock, I would have to see if it is being loaned out at that time. It would be time consuming for a small amount of money...Paperwork, tax filings, no SIPC if the other broker or banks went belly up.

If I was doing no options and just held quality value stocks (industry leaders) this would make sense.

I also don't like if the stock is falling, it may take awhile (a few days to clear), to sell my position. Yeah, I know I could do an option to protect...But that is just added cost and future work for my CPA.

Usually in Nov/Dec, I want to be glean my short term/long term capital losses. I may want to make a quick move...I might be limited for clearing the loan, to make the trade.

This does make sense for someone who holds long term (what they believe to be) high quality stocks (Apple, ADM, RVT, Coke, Exxon). They can generate the income and sell the dogs toward the end of the year for gleaning losses. They also should be in good health, (not having to clear and close accounts). It looks like a long term commitment to the broker. It really would work best with accounts over $1,000,000. and above.

It just doesn't look right for me...
 
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