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Shorts very rarely actually get closed out by a prime broker (at least for institutional investors). The stock borrow world is very inefficient, but when a forc

Shorts very rarely actually get closed out by a prime broker (at least for institutional investors). The stock borrow world is very inefficient, but when a forced buy is on the line the PB will almost always find more supply. Especially with a presumably large retail long base, the retail brokers like TDAmeritrade will literally start calling up long positions to offer to pay for the rehypothecation rights. Others like robinhood have that as part of their terms. However, your commentary around quick upward price action is still valid.

chollida1 7y ago
> Shorts very rarely actually get closed out by a prime broker (at least for institutional investors). This is technically true, but far away from what actually happens. What normally happens is that when borrow gets pulled the prime will notify the firm that they have to close the position for T+2 settlement. There is a 3pm buy in window but you are correct that its not often that the prime is forced to do it because they make it clear to the firm that at 3pm they will send a market order for the required amount, this will almost always result in the firm buying back the position before this comes to pass. Occasionally the prime will find other borrow but often that borrow has multiple issues that make it unsuited for holding a short position for more than a day or two. 1) unstable and could get pulled at any moment. 2) rates are much higher than what the firm was currently paying So theoretically you are correct but practically speaking not so much:) The firm will usually just close out a position at this point unless they have a firm conviction that they can make a profit at the increased borrow rate and ride out the moentary pop. And with borrow rates that can did approach 60% for lyft you are betting that Lyft will go down more than 60% inside of one year. Possible but not very likely, you can be directional correct but still lose due to your borrow fees. Retail doesn't help much for larger firms with borrow as the market isn't near as large as the institutional market. Though maybe you just are used to trading in smaller share quantities than I am:)

chollida1 7y ago

> Shorts very rarely actually get closed out by a prime broker (at least for institutional investors). This is technically true, but far away from what actually happens. What normally happens is that when borrow gets pulled the prime will notify the firm that they have to close the position for T+2 settlement. There is a 3pm buy in window but you are correct that its not often that the prime is forced to do it because they make it clear to the firm that at 3pm they will send a market order for the required amount, this will almost always result in the firm buying back the position before this comes to pass. Occasionally the prime will find other borrow but often that borrow has multiple issues that make it unsuited for holding a short position for more than a day or two. 1) unstable and could get pulled at any moment. 2) rates are much higher than what the firm was currently paying So theoretically you are correct but practically speaking not so much:) The firm will usually just close out a position at this point unless they have a firm conviction that they can make a profit at the increased borrow rate and ride out the moentary pop. And with borrow rates that can did approach 60% for lyft you are betting that Lyft will go down more than 60% inside of one year. Possible but not very likely, you can be directional correct but still lose due to your borrow fees. Retail doesn't help much for larger firms with borrow as the market isn't near as large as the institutional market. Though maybe you just are used to trading in smaller share quantities than I am:)