If short sellers are not able to buy shares they are in default, and Fidelity is on the hook. This risk is designed to be addressed by requiring short sellers post collateral, usually around 105%, so that Fidelity can purchase shares using this collateral. The required value for this collateral is being updated daily. But if SP jumps 10-15% or more intraday, Fidelity can potentially be left with collateral which can't cover purchasing the same quantity of shares that they lent out.
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If short sellers are not able to buy shares they are in default, and Fidelity is on the hook. This risk is designed to be addressed by requiring short sellers post collateral, usually around 105%, so that Fidelity can purchase shares using this collateral. The required value for this collateral is being updated daily. But if SP jumps 10-15% or more intraday, Fidelity can potentially be left with collateral which can't cover purchasing the same quantity of shares that they lent out.
We've really homed in on $252.50 as a target price, with (for recent history) quite low volume. I expect this on Friday for option expiration, not on a Thursday.
Allow me to help. I put in a 250 put / 255 call strangle (i.e., betting on continued volatility) at the precise moment the stock stopped moving. It hasn't budged since. As soon as I exit these with a loss (losing patience, won't be long now) the stock will continue moving.
I don't understand why people are expecting a major short squeeze at this level. Yes, a lot of the shorts are under water. Yes, there's a ton of shorts. But so was the case in April 2016, June 2015, September 2014. How is now different?
Shoot above 300 then we can speculate short squeeze.
Shoot above 300 then we can speculate short squeeze.
It is not about the level, it is about the trend.
As things are movin', 300 is less than a month away.
- Markets poised. Some of the big dogs report after close today. There will be some movement tmrw one way or the other.
Hogfighter
Professional Lurker
Yep agree. Over the years I've seen very little correlation between the # of shorts and SP movement. And the higher the SP moves, more shorts want to pile in. Plus the SCTY acquisition changes the game somewhat.
adiggs
Well-Known Member
I think that this is slightly incorrect, regarding the mechanism by which the collateral protects the lenders of shares.
Yes - Fidelity (or whichever brokerage you're with and has borrowed your shares) will collect that cash collateral from the borrowers of the shares, and yes that cash is deposited with a third party bank (FDIC insured account). The role of that collateral is to protect the share lender/owner (me) in the event of default by the brokerage, with me (the share lender) able to withdraw the full value of the cash account (102-105% of yesterday's closing value) IN LIEU of receiving back my shares.
But for me to be able to take the cash back, Fidelity has to be in default regarding the shares they borrowed from me (default meaning they are unable to perform when my shares need to be returned, for whatever reason). It isn't a convenient option, where Fidelity elects to either return my shares OR elects to return cash in lieu of shares. It's a default event, and the cash collateral means I don't need to wait for the bankruptcy court to decide how much I get back, and what form I get it in.
For obvious reasons, Fidelity is HIGHLY motivated to make sure that never happens. And this is why I'm comfortable having my shares lent out. I also understand why @TrendTrader007 or anybody else elects to eliminate even this small bit of risk.
Unexpected positive event. It's debatable at what current SP we're in the danger zone of that happening. Most shorts are under water now, arguably it won't take that much for the dominos to start falling. I personally don't buy it, simply because I expect there's plenty of willingness to sell at $300 levels.
Exactly. As long as we are below 300 level, some shorts would still be profitable and they know from historical reference in the past 3 years that this is exactly how they could make most of the money, all the reason to short more. Similar to longs who wait to buy the 180 support.
This is definitely not a positive. I hope Tesla buries him in court.
Tesla is suing its ex-Autopilot director for allegedly poaching employees and stealing confidential information
Tesla is suing its ex-Autopilot director for allegedly poaching employees and stealing confidential information
Sterling Anderson was a product management expert, hardly indispensable as compared to hardcore engineers. Tesla lost nothing with his departure except for the alleged stolen confidential items in that lawsuit.
On the other hand, Justin Lattner's addition is a big positive. The tendency of the very best Silicon Valley engineers is to work with a team of similar or better stature. Money Is a distant second priority for them.
You took my post out of the context. I was responding to a post discussing Fidelity as an OWNER of the TSLA shares. So my post was written about Fidelity owned TSLA shares that were lent by them to short sellers, NOT Fidelity lending shares of their clients to short sellers through the fully paid securities lending program.
adiggs
Well-Known Member
ahh! Thank you for the clarification and my apologies for that mistake.
I would certainly expect Fidelity to be much more risk averse about lending out their shares (at least - lending out ALL of their shares) as Fidelity is on the hook for returning those shares to a variety of lenders of shares. The pool of shares Fidelity owns is one place the company can go get shares if they borrow shares and are unable to return them to the people they borrow from.
All of which gets all sorts of daily analysis and review to ensure the company isn't putting itself in danger of going out of business in pursuit of earning ~1-2% by lending out a whole big pile of TSLA shares. (It's good money, but it's not THAT good
).
About short-selling and collateral damage, so to speak (hey! I like that one. But of course I tend to like most Audieisms....):
I worked it out to my satisfaction using a physical piece-of-paper 1 share of TSLA (somebody's business card, but never mind).
I like TSLA; you hate it; so through Fidelity you borrow it to sell it. Price rises and Fidelity tells you to increase your collateral; you're broke and can't and so things start unraveling. All that is clear to me and I'm sure to all.
So here's what happens next, I think:
Fidelity: "Cough up."
You: "Can't."
F: "Cough up"
You: "Still can't"
F: "Last chance"
You: "Hello, Nigeria Airlines?"
F: "OK. You're out. Audie, we have a problem here."
A: "Not my problem. YOU have a problem. Give me my share back thank you very much"
F: "Oh, fiddledeedee. Hello, AIG? You know that insurance we have regarding busted trades and margin collaterals? Well, we're cashing in on that policy. Audie's a spoilsport and wants that nasty piece of paper back and it's going to cost us a lot. So pay up."
F: "Okay Audie. Here's your share back.
AIG: "Hello shareholders? Umm, we had a really bad quarter. Thank goodness we'd reinsured through Swiss Re & Lloyds"
Lloyds: "So sorry old chappies, but we seem to have run into a spot of troublesomeness here."
Lather, rinse, repeat.
How'd I do?
I worked it out to my satisfaction using a physical piece-of-paper 1 share of TSLA (somebody's business card, but never mind).
I like TSLA; you hate it; so through Fidelity you borrow it to sell it. Price rises and Fidelity tells you to increase your collateral; you're broke and can't and so things start unraveling. All that is clear to me and I'm sure to all.
So here's what happens next, I think:
Fidelity: "Cough up."
You: "Can't."
F: "Cough up"
You: "Still can't"
F: "Last chance"
You: "Hello, Nigeria Airlines?"
F: "OK. You're out. Audie, we have a problem here."
A: "Not my problem. YOU have a problem. Give me my share back thank you very much"
F: "Oh, fiddledeedee. Hello, AIG? You know that insurance we have regarding busted trades and margin collaterals? Well, we're cashing in on that policy. Audie's a spoilsport and wants that nasty piece of paper back and it's going to cost us a lot. So pay up."
F: "Okay Audie. Here's your share back.
AIG: "Hello shareholders? Umm, we had a really bad quarter. Thank goodness we'd reinsured through Swiss Re & Lloyds"
Lloyds: "So sorry old chappies, but we seem to have run into a spot of troublesomeness here."
Lather, rinse, repeat.
How'd I do?
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racer26
Active Member
I believe you're correct. I think the (unlikely) event that people are questioning is what happens in the event that Fidelity is unable to get a share to give you at any price. I think what happens then is they instead fall back on the collateral cash value of the previous day's close and give you that. Its a situation that would essentially never happen, because Fidelity ought to be able to get their hands on a share to give you at some price, and I believe they're obligated to return you a share if it is at all possible, regardless of what it might cost them.
I am no expert, but somewhere along the way (actually right at the beginning), if you lend your share you go from being a proud owner of that share to being the proud party to a contract with another party (your broker or some affiliate, presumably).
So if you don't like how they handle the messy situation above, you don't get your share back, you have to sue, or arbitrate. You have to spend money, you have to prove damages, etc. You say you would have sold at the peak, they say I doubt it. You potentially have a big fat mess instead of your share to sell as you please. I think there has been litigation over shares not being returned in the past but don't recall details.
Also, are you sure all brokers are insured for this sort of loss, and haven't done clever things like park the contractual obligation to pay in some subsidiary that may not have deep pockets?
Even with these questions/possible risks, the odds of things going horribly wrong seem very low if you are lending to a reputable outfit, and probably can be mitigated in various ways.
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