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"The so-called borrow rate, or fee imposed by brokers on traders who want to sell short, has dropped to about 30 percent from 99 percent earlier in the month, L
by feralchimp 15y ago
"The so-called borrow rate, or fee imposed by brokers on traders who want to sell short, has dropped to about 30 percent from 99 percent earlier in the month, Leung said. At 30 percent, Groupon’s shares would have to decline by at least that much before the trader makes a profit."
I must be missing something...
When I buy shares, I don't get to inform the broker that the stock needs to go up by 30% before they can execute my trade at today's price.
Betting on a stock to dip 5% seems like a big enough risk that I should be able to make money on it. 30% just sounds crazy.
- deleted 15y ago[deleted]
- lell 15y agoI really wanted to short this ticker during the IPO, but I was worried that I would have had to pay dividends that would go over my budget and I'd have to give up the positions before they were profitable, or that I'd accidently get futures instead of options (and potentially lose an arbitrary amount of money overnight). Does anyone know how one could have gone about shorting this in a way that made money with a budget of say $2500, (i.e., in a way that would have incurred a maximum loss of $2500) given what happened?
- jmvoodoo 15y agoBuy put options.
- dankohn1 15y agoBuy $2500 worth of puts. You would have large upside and could lose at most what you paid or the put. Of course, The time decay works against you, but that wouldn't matter given the swings you're expecting.
- AndyIngram 15y agoIt would be highly unlikely for Groupon to issue a dividend, but shorting does have risks you need to educate yourself on if you are going to attempt it. I have a feeling options particularly put options would be priced highly at this time so a better choice could be to do a bearish call spread. http://www.optionsxpress.com/free_education/strategies/bear_call_spread.aspx http://www.optionsxpress.com/free_education/strategies/bear_...
- dmpatierno 15y agoNo, you sell someone else's shares immediately and promise to buy them back to replace them in the future. You're right that it's basically an IOU, but you got the order backwards.
- jpdoctor 15y ago> I must be missing something.. When you borrow shares to short, the person you are borrowing them from (usually a broker) specifies a fee. Your quote from the article is saying that the fee is 30% (which is friggen huge, but is part of the manipulation that occurs with a hot IPO.)
- esrauch 15y agoHow could the fee be 99%? Doesn't that imply that anyone who takes the short is damn sure that the stock will be worth $0?
- pathdependent 15y ago99% is an the annualized rate. There have been a few stocks with > 100% borrow rate. It implies most of the shorters don't expect to hold for a year (or don't realize the costs.)
- antr 15y agomany people have made heaps of money these past days shorting grpn. let's wait and see what happens by the time the 180 day lock-up expires. the risk with shorting grpn today is the small free-float given that it's easy to create demand with small amounts of capital. it's a no brainer that when the lock-up expires this stock will fall like a brick.
- deleted 15y ago[deleted]
- gujk 15y agoIf it's a no-brainer, why aren't short sellers flooding the market and driving down the price to the post-lockup price?
- antr 15y agothere is a limited amount of free-float which you can borrow against. the counter-party needs to purchase that stock, and if a large number of investors want to short sell the stock, they are indirectly increasing the demand. a good example is how hedge funds lost eur30bn back in 2008 trying to short sell overvalued volkswagen stock. i.e. Porsche selling part of its VW stake to ease a short-squeeze