You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Why with 3Mil in positions are no stocks are being lent
- Thread starter gescob3
- Start date
If your interested in guaranteeing getting hard to borrow/short stock rebates, you may want to consider buying an option combo (long call short put) instead of buying the stock outright. The short stock rate is written into the prices.
Definitely worth considering it if you are trading very hard to borrow stocks.
Definitely worth considering it if you are trading very hard to borrow stocks.
So you think they ding you for option spreads? It seems contrary to what they have on their website. Just for the life of me I can't get an answer out of them of even what my calculation is. I spend an hour on chat just trying to explain to them my question
Yeah, I think so. Regarding the phrase "this only reflects naked options margin, where no relief is provided on covered/spread positions": I think this must mean they consider every option separately, not that the formula they gave is only valid for naked options and some other formula is used for spreads. This would agree at least qualitatively with my experience.
[QUOTE="elt894"
@mskl, Yep, was watching the ELAN/LLY spinoff. I noticed the premium on the LLY March 150 conversions was stable around $0.20 and then jumped close to $1.00 around the end of Feb. Any insight into why, or just randomly higher demand?[/QUOTE]
I will give you my two cents. Like you said it was about .20-.25 cents and then all of a sudden it popped. The arb was to buy the LLY conversion locking in a loss on the shares you didn't get converted for ELAN shares and you would also buy the ELAN march $40 conversion and sell the shares (and lock in a loss of about .30-.40 on the new shares you were going to get). The profit came from the 7+% incentive you got on the LLY shares you sold. The original numbers indicated most of the shares would get tendered.
The price of the conversion went up because the arbs were getting a sense that many would not tender their shares (many reasons for this). The less shares tendered the more ELAN they would get - based on proration. Basically only 50% of the shares were tendered so the arbs got twice as much ELAN.
Anyhow, the conversion ended up being worth about $151.25 based on the tender results and I don't think it ever traded there. You could arb this in many ways:
1) same way the big boys did it (described above)
2) buy 99 shares of LLY (no proration for odd lots). This would make you about $700 overnight
3) sell the conversion and hope that you are borrowing shares from someone who doesn't tender or your broker can find un-tendered shares for you
4) sell deep calls prior to the tender closing (friday pm). hope they are not assigned
5) short stock friday at close
3-5) you need a good broker who can borrow shares for you so you are not liable for the tender. There are some interesting ways to do this.
You should always keep in mind what the "real tender deadline" is vs the deadline of most brokers. In this case the actual deadline was midnight (friday) but most brokers including IB had a 1 PM EST deadline. This is so they can borrow all the untendered shares within the firm and short them via the conversion Friday afternoon. If you were paying attention on Friday you would have noticed the conversion trade down to $150.45-$150.50 around 1 PM. Guess who was selling?? Free money for those brokers!
Anyhow - unfortunately there are some margin related issues that prevents retail from participating big time. But it is free money nonetheless.
@mskl, Yep, was watching the ELAN/LLY spinoff. I noticed the premium on the LLY March 150 conversions was stable around $0.20 and then jumped close to $1.00 around the end of Feb. Any insight into why, or just randomly higher demand?[/QUOTE]
I will give you my two cents. Like you said it was about .20-.25 cents and then all of a sudden it popped. The arb was to buy the LLY conversion locking in a loss on the shares you didn't get converted for ELAN shares and you would also buy the ELAN march $40 conversion and sell the shares (and lock in a loss of about .30-.40 on the new shares you were going to get). The profit came from the 7+% incentive you got on the LLY shares you sold. The original numbers indicated most of the shares would get tendered.
The price of the conversion went up because the arbs were getting a sense that many would not tender their shares (many reasons for this). The less shares tendered the more ELAN they would get - based on proration. Basically only 50% of the shares were tendered so the arbs got twice as much ELAN.
Anyhow, the conversion ended up being worth about $151.25 based on the tender results and I don't think it ever traded there. You could arb this in many ways:
1) same way the big boys did it (described above)
2) buy 99 shares of LLY (no proration for odd lots). This would make you about $700 overnight
3) sell the conversion and hope that you are borrowing shares from someone who doesn't tender or your broker can find un-tendered shares for you
4) sell deep calls prior to the tender closing (friday pm). hope they are not assigned
5) short stock friday at close
3-5) you need a good broker who can borrow shares for you so you are not liable for the tender. There are some interesting ways to do this.
You should always keep in mind what the "real tender deadline" is vs the deadline of most brokers. In this case the actual deadline was midnight (friday) but most brokers including IB had a 1 PM EST deadline. This is so they can borrow all the untendered shares within the firm and short them via the conversion Friday afternoon. If you were paying attention on Friday you would have noticed the conversion trade down to $150.45-$150.50 around 1 PM. Guess who was selling?? Free money for those brokers!
Anyhow - unfortunately there are some margin related issues that prevents retail from participating big time. But it is free money nonetheless.
Thanks! Some good points there. I was in and out on the conversions and ended up going for the odd lot. As you mentioned losing margin on the tendered shares makes it tough to do in size. I probably just need more experience following these types of things. Right now I have no sense of what the tender ratio should be, other than looking at what's implied by the options.