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this is a fascinating read! - I do have a basic question: when do short sellers realize that the total outstanding shares are not enough to close position - or
by tshanmu 7y ago
this is a fascinating read! - I do have a basic question: when do short sellers realize that the total outstanding shares are not enough to close position - or the assumption is that the same share can be used to settle multiple shorts at different times? thanks, HN!
- vikramkr 7y agoFor different short positions, each shorter could buy the shares from the person before to close their position, but if a lot are up around the same time that might become untenable, and would spike the price considerably
- tshanmu 7y agothanks!
- hermitdev 7y agoUsually this handled via a stock loan or triparty agreement. A stock loan is an OTC (over the counter agreement, e.g. not on an exchange) when firm A "borrows" the shares from firm B and then after a term, either need to return the shares, or possibly offer cash compensation. This helps to cover the short. Versus a naked short, where you don't actual have possession of the shares you're selling. In my experience, naked shorts are rare, but I dont know how my experience plays out to the industry et large. A triparty agreement is somewhat similar, but well, involves 3 parties instead of 2. Who gets what isn't always immediately clear to a casual observer. These can get quite nuanced and difficult to understand.
- tshanmu 7y agothanks!