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Cost to Borrow Tesla Shares for Shorting Hits 85%

Discussion in 'TSLA Investor Discussions' started by luvb2b, Mar 26, 2013.

  1. luvb2b

    luvb2b Member

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    #1 luvb2b, Mar 26, 2013
    Last edited: Mar 26, 2013
    got this tidbit from a broker this morning. the cost for a short seller to borrow shares of tesla is now 85% annualized. wow. that may not be the cost all year, but it is the cost now. ouch ouch and double ouch.

    Name Tesla Motors Inc
    Number of Lenders with Inventory 3
    ISIN Code XXXXXXXR1014
    Country United States
    Available 75000 shares
    Rebate Rate -85.3478%

    here's the recent history

    26-MAR-13 -85.35%
    25-MAR-13 -75.84%
    24-MAR-13 -60.69%
    23-MAR-13 -60.69%
    22-MAR-13 -59.51%
    21-MAR-13 -54.77%
    20-MAR-13 -49.85%
    19-MAR-13 -49.04%
    18-MAR-13 -44.88%
    17-MAR-13 -43.94%
     
  2. Zzzz...

    Zzzz... Member

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    Could you tell me exactly how rebate calculated in this case?

    If share cost $37, to borrow for one year at 85% short will pay $31.45? To make money short should hope for shares will trade below $5.55?

    That is VERY unreasonable, and could not be the case. I mean short could get Jan '14 $23 puts for $1.50, and all he would need to make money is for shares to go below $21.50, not below $5.55...

    So this is why I'm wondering what those percentages represents.
     
  3. luvb2b

    luvb2b Member

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    my understanding after talking to my broker is that it is an annualized rate with interest calculated daily. the rate fluctuates daily with supply and demand. so if some shorts cover, it may go back down to 40-50%. if more shorts pile on, it could go over 100%.

    Example
    the charges start when the shares are settled. so for example, let's say i open a short on march 19. settlement is t+3 which is march 22nd.

    now the charges start:

    date tesla close interest factor x rate = cost
    3/22 36.62 1/365 59.51% .0597
    3/23 36.62 1/365 60.69% .0609
    3/24 36/62 1/365 60.69% .0609
    3/25 37.53 1/365 75.84% .0780

    so the total cost to be short the last 4 days would be around 26 cents. if it goes up to 85% today and the close is $38, today's carrying charge will be: $38 x 0.85 x 1/365 = .0885, or about 9 cents. the worst will be if the rate stays high into the long weekend, because that means they'll pay 3 days of carrying charges at a really high rate.

    i can't remember the last stock i saw like this. a short that wants to hold through the next earnings report is going to pay almost $2.63 in carrying charges assuming 60% annualized carry cost.

    O U C H!
     
  4. Zzzz...

    Zzzz... Member

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    Ohh I see how it works.

    This makes sense for very short shortings, one borrow just for a few days max, ok may be few weeks, paying $2.63 for 45 days in hope that shares would drop at least $2.63+. This is comparable with put option, May 18 2013 $37 puts cost $3.10

    - - - Updated - - -

    I'm wondering how much Schwab paying to Tesla investors for letting Schwab to borrow TSLA shares:cool:
     
  5. luvb2b

    luvb2b Member

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    last time i looked schwab was paying 6%. imo this situation is unsustainable. even the puts are starting to get quite expensive. think about that may put - the stock has to go down 10% just to break even!

    someone should tweet @elonmusk & @teslamotors and mention that the cost of borrowing shares of tesla to short is up to 85% and that people are paying up for the privilege of betting against him bigtime. :biggrin:

    the situation is unsustainable imo. especially with what i expect will be a huge earnings, revenue, and margin beat. i think a couple good news positive gaps and there could be some sustained momentum here.

    just for reference, here's some other stocks and how much they cost to borrow. keep in mind many of these companies are highly suspect and/or have had disasters for earnings reports. all of them are multiples cheaper to borrow than tesla which has rapidly growing revenues and should have an excellent eps report.

    hlf which is insanely shorted costs 4% to borrow.
    crm is less than 1%.
    svu has 37% of the float short it's only a 10% borrowing charge.
    jcp 30% of the float short costs only 2% to borrow.
    bks with 40% of the float short? only 3% to borrow.
    mcp with 30% of the float short? 3% to borrow.
    ddd with 30% of the float short? 18% to borrow.
     
  6. kcveins

    kcveins delivery 2/7

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    It went up from 4% to 6% last week...
     
  7. luvb2b

    luvb2b Member

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  8. Zzzz...

    Zzzz... Member

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    Nice! Shorts are not going away - new all time record! They are pumping up more $$$ into pockets of investors, ones that let their shares to be borrowed plus they lower prices for those who still investing:tongue:
     
  9. Citizen-T

    Citizen-T Active Member

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  10. wycolo

    wycolo Active Member

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    #10 wycolo, Mar 27, 2013
    Last edited: Mar 28, 2013
    > ones that let their shares to be borrowed [Zzzz...]

    Only margin 'owned' shares can be shorted. But the broker is the actual owner in that case.

    Cash account stocks cannot be shorted against your will.
    --
     
  11. Zzzz...

    Zzzz... Member

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    This is not true.

    Check Schwab.com. Or even this thread: Willing to let someone borrow your Tesla shares?

    There are ways to lend shares and make some money of shorts for investors.
     
  12. Nicu.Mihalache

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    Thanks for this great insight. Could you please update that info from time to time?
     
  13. luvb2b

    luvb2b Member

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    i can try to update it, not a real high priority for me though. if you want to keep tight track of it call your broker and ask them how much it costs to short tesla, they should be able to tell you. that said, here's the latest:

    we're still hovering around 80%. which means anyone who is short and stays short through the weekend is going to pay almost 1% just to hold the short:

    thurs,fri,sat,sun nights = 4 nights. 4 / 365 x 80% x 38.2 = $0.33

    shorting tesla is a very expensive proposition!

    28-MAR-13 -85.82% <--- not finalized yet
    27-MAR-13 -77.29%
    26-MAR-13 -85.35%
    25-MAR-13 -75.84%
    24-MAR-13 -60.69%
    23-MAR-13 -60.69%
    22-MAR-13 -59.51%
    21-MAR-13 -54.77%
    20-MAR-13 -49.85%
    19-MAR-13 -49.04%
    18-MAR-13 -44.88%
    17-MAR-13 -43.94%
     
  14. Nicu.Mihalache

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    Thanks.

    My broker (ETrade) does not allow me to short Tesla (I tried at $50 or so to check availability and I may try it for real as a hedge against my calls if there is a short squeeze). Actually, ETrade could not borrow TSLA shares to short since Nov. 2011.
     
  15. luvb2b

    luvb2b Member

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    with the cost of borrowing as high as it is, it makes no sense to hedge calls by shorting common. if you hold 1000 shares tesla short over the weekend it's probably going to cost around $350 to hold the position (around 35c per share). every business day that the short is held costs around 8c per share at today's rate. the rate may not stay this high, but if it did for even one month it's going to cost $2.40 per share to hold the position (30 days x 8c per day). that should far outweigh the benefit of using shorts to hedge.
     
  16. kenliles

    kenliles Active Member

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    probably true in any normal situation; but if you're holding LEAPS which carry a trade cost (sell and re-buy large spreads), but get an extreme short squeeze- you could participate in the pullback while holding your LEAPS. But I agree with you, it's an expensive risk; Might be better to buy some puts instead
     
  17. Nicu.Mihalache

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    Sorry, I should have explained better. I am talking only in the event of a short squeeze. Say I have $40 calls. Stock goes to $60. I short at $60 to effectively lock $20 in profits. If it goes up and down a lot during the day, I can cover at $50, short again at $65 etc. - all the time being covered by the calls and I do not have to worry much about implied volatility and bid / ask spreads for the calls. That would be the strategy for at most 25% of the calls. Another chunk can be "replaced" by higher strike (so effectively selling the bull call spread $40 - $50 for example), and another chunk just sell the calls, buy them back if they get a lot cheaper. Another way to lock in gains is to buy cheap puts when the stock is very high, but this may be a little less efficient than just shorting the stock.
     
  18. Nicu.Mihalache

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  19. luvb2b

    luvb2b Member

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    i guess this article basically recycled my post into a seekingalpha piece. his added opinions about the options are 100% accurate.

    seekingalpha pieces are usually garbage. this author has the facts and circumstances outlined clearly and correctly.
     
  20. kenliles

    kenliles Active Member

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    he's a regular poster there and usually of decent quality
     

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