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They can't cover their position because their position is 140% of the available shares...
by JustFinishedBSG 6y ago
They can't cover their position because their position is 140% of the available shares...
- bo1024 6y agoI think this wording may be a bit misleading. I think the challenge is more subtle, let me walk through a scenario. 100 shares exist, all owned by person A. They lend all the shares to a short-seller, who sells them to B. Then B lends 40 of those shares back to the short seller, who sells them to C. Now 140% of existing shares are shorted. But 240 shares are "owned" in some sense. A "owns" 100 shares and B "owns" 100 shares and C "owns" 40 shares. What's not clear to me is which of these shares are available to be bought by the short seller. I assume you can't sell your shares if they're loaned out. So the short seller can first buy 40 shares from C and deliver to B. Then he has to buy 100 from B, including the shares he just delivered, and give them all to A.
- KSteffensen 6y agoWhat happens in the case where the short reaches it due date and neither B nor C want to sell? Intuitively I would say that the short seller goes bankrupt, A doesn't get any of the stuff he loaned out back, B ends with 60 stocks while C has 40. Is that what happens in reality?
- bo1024 6y agoI don't know!