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Say an Insurance company owns 1,000,000 Tesla shares worth $273 million at the current price. It can lend them to a 'short seller' for a fee say 1% for 3 month
by aussiegreenie 8y ago
Say an Insurance company owns 1,000,000 Tesla shares worth $273 million at the current price. It can lend them to a 'short seller' for a fee say 1% for 3 months.
The insurance company will get their 1 million shares in three months but it will get an income of $2.7 million. This means the portfolio is generating a positive return or it lowers the effective cost of the shares. But by helping short sellers it can wipe out your portfolio.
eg If the short seller(s) force the price down to $150 your shares have lost about $120 million.
- dragontamer 8y agoThat's not how the market works. When a short-seller is done with their term, they have to BUY the shares back. When short-sellers buy (to cover), the price increases back. In the long term, a short-seller sells the stock (which will drop the price), but then has to buy the stock later (which increases the price of the stock). The long-term trend of any short-seller is neutral at the worst-case.