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Post by cretin11 on Nov 19, 2015 9:20:31 GMT -5
I think that's a good point cusop. A while back we were saying the pressure cooker had to give because lending rates were sky high. They've gone much higher since then. Joey I hope you're right this time but it feels like deja vu to me!
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Post by Deleted on Nov 19, 2015 9:45:46 GMT -5
How is the interest on loaned shares actually calculated? Is it done on a daily basis ie current int rate/365? Is the interest calculated on the previous days closing price and if one borrows shares, do they also pay interest on Sat & Sun or are the loaned shares given back to the owner Sat & Sun and then re-loaned Monday morning.
If someone borrowed 100,000 shares for the month of January, and the interest rate to do so was 40%, can someone show me the math of the actual interest payments. Feel free to use a hypothetical share price for the calculation and thank you for your time.
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Post by ezrasfund on Nov 19, 2015 9:56:34 GMT -5
Interest is calculated daily based on the closing price each day, and includes weekends. Schwab pays on the 1st of each month, but someone has said that Fidelity pays daily.
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Post by saxcmann on Nov 19, 2015 10:12:41 GMT -5
Fidelity pays at the end of each month.
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Post by kball on Nov 19, 2015 10:38:10 GMT -5
Fidelity pays at the end of each month. I seem to recall in the Fidelity docs that interest was calculated based on 360 days rather than 365 |
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Post by cretin11 on Nov 19, 2015 11:25:04 GMT -5
I think scotta is asking more about how it's calculated for people who are shorting. I would guess it works the same way, in other words the interest one pays is calculated each day based upon closing share price, Sat and Sun included (based on Fri sp). So as share price goes lower, the shorts pay less interest? Of course, we have lately seen borrowing rates climb, so that counter balances it.
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Post by kc on Nov 19, 2015 13:20:08 GMT -5
Fidelity pays at the end of each month. I seem to recall in the Fidelity docs that interest was calculated based on 360 days rather than 365 most financial firms are the 360 period. |
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Post by Deleted on Nov 19, 2015 13:45:15 GMT -5
Interest is calculated daily based on the closing price each day, and includes weekends. Schwab pays on the 1st of each month, but someone has said that Fidelity pays daily. Thanks to everyone for the input. Based on comments, lets say today we close at $2.40, the interest rate is 40% and we use a 360 day year. For today only, the short can borrow one share for (2.40 x 40%) / 360 = 0.0027 For a 7 day week, the cost would be 0.0187 Keep in mind, if Schwab is paying the retail investor 40%, the entity borrowing is paying much more. For my example above, to borrow 100,000 shares for a 7 day week is 100,000 x 0.0187 = $1,870 (assuming average daily closing share price of $2.40) So under this example, if one shorts 100,000 shares, and borrows the shares to do so, for each 0.01 drop in share price, they make $1,000 If it drops 0.05 on the week, they make $5,000 - $1,870 =$3,130 We have like 100,000,000 shares short now correct? How much lower can the stock go and at this point in the game, if you look at the incremental gain, marginal cost to do so and the risk, it seems like there are likely better trades to be had. Everyone can't run for the exits at the same time and if / when they do if SP spikes to $15, at least for the day, the interest cost would be a killer. Are there any data sources that could tell us what the average sale price is for these 100,000,000 shares? One more question, if an institution is short MNKD, even if they have some type of hedge with options, legally, they would still have to borrow shares, correct? |
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Post by cretin11 on Nov 19, 2015 13:59:57 GMT -5
I think your formula looks correct scotta. And I believe Fidelity is now charging over 60% to the borrowers.
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Post by saxcmann on Nov 19, 2015 14:16:27 GMT -5
I think your formula looks correct scotta. And I believe Fidelity is now charging over 60% to the borrowers. 61.25% shorts are paying now. I think this will continue to go up until the middle of January. Maybe close to 70% and about 50% for us. The institutions maybe selling call/puts so they can't short the stock they own. Tutes make money on premium for selling options. January calls that don't hit strike price get control back to tutes who sold premium. How is this theory? |
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Post by mssciguy on Nov 19, 2015 14:24:24 GMT -5
I think your formula looks correct scotta. And I believe Fidelity is now charging over 60% to the borrowers. 61.25% shorts are paying now. I think this will continue to go up until the middle of January. Maybe close to 70% and about 50% for us. The institutions maybe selling call/puts so they can't short the stock they own. Tutes make money on premium for selling options. January calls that don't hit strike price get control back to tutes who sold premium. How is this theory? Love your theory but there is a hole... who is supplying the shorts with borrowed shares? |
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Post by saxcmann on Nov 19, 2015 14:32:49 GMT -5
61.25% shorts are paying now. I think this will continue to go up until the middle of January. Maybe close to 70% and about 50% for us. The institutions maybe selling call/puts so they can't short the stock they own. Tutes make money on premium for selling options. January calls that don't hit strike price get control back to tutes who sold premium. How is this theory? Love your theory but there is a hole... who is supplying the shorts with borrowed shares? Maybe another institution or HF (via BP)? |
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Post by mssciguy on Nov 19, 2015 14:38:59 GMT -5
Love your theory but there is a hole... who is supplying the shorts with borrowed shares? Maybe another institution or HF (via BP)? that's the multibillion dollar question. If there was a good answer, I will take off her tin foil hat forever.  it's a tad bizarre that so much money is made in the syringe business. |
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