4 ms·

Aren't 140% of 10 million shares 14 million?

Uehreka 6y ago
So, my layman’s understanding is that if there are 10 million shares, and you borrow 1 million of them (a 10% short position) from their owners, then sell them to new owners, both the old owners and new owners count as owning stock, and so 11 million shares “are owned”. My understanding is that then when the end of the quarter comes around, the owners of all 11 million shares are owed dividends. 10 million of those receive a dividend from the company, and the short seller has to pay a dividend to the people they borrowed from. So in a very real sense, it is as if 11 million shares are owned. To expand: if there were 10 million shares, you borrowed all of them, and sold all of them, you would have a 100% short position and 20 million shares would be “owned” by various people. If you then went to the owners of 4 million of the freshly sold shares and borrowed from them and re-sold the shares... now you have a 140% short position and 24 million shares “exist”. 10 million of them are “real shares” and 14 million are “obligations” that you’ll have to fulfill at the end of each quarter. My understanding (again, almost entirely from reading Matt Levine columns) is that this is a thing you can do if you’re really cheeky, you’d just need a mountain of collateral and balls of steel.
- dragonwriter 6y ago
  > So, my layman’s understanding is that if there are 10 million shares, and you borrow 1 million of them (a 10% short position) from their owners, then sell them to new owners, both the old owners and new owners count as owning stock, and so 11 million shares “are owned” The old owners don't strictly own stock, they own a future claim due on a certain date against you for the borrowed quantity of stock plus a claim against you for the equivalent cash value of any dividends issued against the number of shares of stock borrowed in the interim. It's mostly equivalent to owning stock, but not exactly the same.
  - Uehreka 6y ago
    Ah OK. So in the context of my 10million-14million-24million example, which of those numbers would be called “shares outstanding”? I keep hearing that word a lot, but don’t want to use it until I’m sure of what it means.
    - dragonwriter 6y ago
      10 million minus any treasury shares held by the corporation itself.

So, my layman’s understanding is that if there are 10 million shares, and you borrow 1 million of them (a 10% short position) from their owners, then sell them to new owners, both the old owners and new owners count as owning stock, and so 11 million shares “are owned”. My understanding is that then when the end of the quarter comes around, the owners of all 11 million shares are owed dividends. 10 million of those receive a dividend from the company, and the short seller has to pay a dividend to the people they borrowed from. So in a very real sense, it is as if 11 million shares are owned. To expand: if there were 10 million shares, you borrowed all of them, and sold all of them, you would have a 100% short position and 20 million shares would be “owned” by various people. If you then went to the owners of 4 million of the freshly sold shares and borrowed from them and re-sold the shares... now you have a 140% short position and 24 million shares “exist”. 10 million of them are “real shares” and 14 million are “obligations” that you’ll have to fulfill at the end of each quarter. My understanding (again, almost entirely from reading Matt Levine columns) is that this is a thing you can do if you’re really cheeky, you’d just need a mountain of collateral and balls of steel.

dragonwriter 6y ago
> So, my layman’s understanding is that if there are 10 million shares, and you borrow 1 million of them (a 10% short position) from their owners, then sell them to new owners, both the old owners and new owners count as owning stock, and so 11 million shares “are owned” The old owners don't strictly own stock, they own a future claim due on a certain date against you for the borrowed quantity of stock plus a claim against you for the equivalent cash value of any dividends issued against the number of shares of stock borrowed in the interim. It's mostly equivalent to owning stock, but not exactly the same.
- Uehreka 6y ago
  Ah OK. So in the context of my 10million-14million-24million example, which of those numbers would be called “shares outstanding”? I keep hearing that word a lot, but don’t want to use it until I’m sure of what it means.
  - dragonwriter 6y ago
    10 million minus any treasury shares held by the corporation itself.