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gigglehertz
Member
As one of the little fish here not allowed to lend out shares can I just ask nicely if you guys are using those juicy lending fees to buy more TSLA and SCTY? That would be the smartest thing I can think of to eventually burn the shorts and help all of us. Thanks.
That's exactly what I'm doing.
TSLA rates at Fidelity continue to creep up, like the temperature in a pot of water with a very short frog in it:
Lend TSLA: 10.5%
Short TSLA: 23.0%, 0 shares available to short
Lend SCTY: 49.0%
Short SCTY: 82.0%, 0 shares available to short
Lend TSLA: 10.5%
Short TSLA: 23.0%, 0 shares available to short
Lend SCTY: 49.0%
Short SCTY: 82.0%, 0 shares available to short
So per IB rates peaked out on 8th. As mentioned earlier I still believe masterplan 2.0 will be presented in close proximity to announcement that SC board accepted the deal. That should increase the pain again but this time around pretty swiftly, sharply.
TheTalkingMule
Distributed Energy Enthusiast
Plus the Gigafactory opening. And I can't imagine there's anyone now left in this stock who is a non-believer. So many chances for the skittish to exit TSLA and certainly the SCTY longs are all locked-in at this point looking for discounted TLSA. Gonna be a fun few weeks!
RIP my 2017 SCTY $70's and $80's. You didn't deserve this.
RIP my 2017 SCTY $70's and $80's. You didn't deserve this.
Chickenlittle
Banned
Actually using the interest to convert my deep in the money options and then loaning those shares too. Almost like compounding my interest monthly
So I noticed something interesting. If buy stock and I lend it out, I get one interest rate and the borrower gets a much higher interest rate, with the brokerage taking a large spread. Now, instead, suppose I assemble a synthetic long (sell a put and buy a call at the same strike and expiration) and hold it to expiration, at which point it turns into stock (I exercise the call if the stock is high, someone else exercises the put if the stock is low, either way I get the stock).
Put-call parity is totally broken right now so this generates a credit upfront. I calculate the static rate of return (assuming the stock doesn't change price -- I know, I know) for the period from now to option expiration, by dividing the credit by the cost of the stock (held as cash to secure the puts) and annualizing. For most (not all) of the particular strikes and expirations I looked at, I seem to be effectively earning a higher interest rate than I would by lending the stock (if it stays at the current price). The static rate of return is pretty close to the interest rate being charged to borrowers of the stock, without the spread taken by the brokerages.
Of course by doing this I'm effectively locking in a fixed return for the period until option expiration. I could do better by holding and lending stock if the stock price goes way up or the interest rate goes way up or both, which would increase my lending income since the interest rate and balance are recalculated daily for stock lending. I'm currently guessing that the interest rate is more likely to drop (especially if the stock price goes way up), which makes the locked-in return better.
The other downside of synthetic longs is illiquidity. SCTY options in particular are thinly traded (TSLA options seem to have more liquidity) and there is no guarantee of being able to unwind the position at all, let alone at a good price, so you're in it until the options expire. The stock lending, by contrast, can be recalled for sale at any time.
I'm leaving the SCTY and TSLA I already have in the lending program, but when I was considering buying more last week, I decided to buy synthetic longs instead of buying stock. (I kind of screwed up on my first synthetic long trade by missing something obvious: a synthetic long with at-the-money strike is about the same financial result as a synthetic long with in-the-money puts and out-of-the-money calls, but the latter is more likely to have the put exercised than the call, which matters for tax purposes. Live and learn.)
This is not investment advice. I am not your investment advisor. I just thought it was fascinating to look at and try to understand; I've seen more potential arbitrage opportunities here lately than I've personally examined before in my life. (Not that I'm doing arbitrage, but when the same product -- TSLA stock -- is selling at many different prices, I'd rather get the most deeply discounted one.)
The merger arbitrage spread between SCTY and TSLA is shrinking, but the arbitrage spread on the options seems to be shrinking more slowly -- SCTY put options still have very high premiums compared to TSLA options, probably still trading on pre-merger-announcement volatility and fundamentals assumptions. I think perhaps the short-sellers and other stock traders are figuring out the merger faster than the options traders are? A lot of people specialize, so the options traders are probably not the same people as the stock traders.
I started looking at single stock futures to see if there was a third arbitrage opportunity for getting better entry points into TSLA, but (a) they're super thinly traded, and (b) it looks like you have to use a pretty specific, and short list of brokers -- mostly IB -- to trade them at all. There's no chance of me getting the paperwork done in time to trade those before the current arbitrage opportunity disappears.
P.S....anyone who followed all that can consider themselves quite financially literate. I explained this to several friends and family recently (most with years of investing experience and generally interested in investing) and only one of them didn't start having the "my eyes glazed over" or "tuned out" look. Which probably explains why the market is not eliminating the arbitrage opportunities very fast!
Put-call parity is totally broken right now so this generates a credit upfront. I calculate the static rate of return (assuming the stock doesn't change price -- I know, I know) for the period from now to option expiration, by dividing the credit by the cost of the stock (held as cash to secure the puts) and annualizing. For most (not all) of the particular strikes and expirations I looked at, I seem to be effectively earning a higher interest rate than I would by lending the stock (if it stays at the current price). The static rate of return is pretty close to the interest rate being charged to borrowers of the stock, without the spread taken by the brokerages.
Of course by doing this I'm effectively locking in a fixed return for the period until option expiration. I could do better by holding and lending stock if the stock price goes way up or the interest rate goes way up or both, which would increase my lending income since the interest rate and balance are recalculated daily for stock lending. I'm currently guessing that the interest rate is more likely to drop (especially if the stock price goes way up), which makes the locked-in return better.
The other downside of synthetic longs is illiquidity. SCTY options in particular are thinly traded (TSLA options seem to have more liquidity) and there is no guarantee of being able to unwind the position at all, let alone at a good price, so you're in it until the options expire. The stock lending, by contrast, can be recalled for sale at any time.
I'm leaving the SCTY and TSLA I already have in the lending program, but when I was considering buying more last week, I decided to buy synthetic longs instead of buying stock. (I kind of screwed up on my first synthetic long trade by missing something obvious: a synthetic long with at-the-money strike is about the same financial result as a synthetic long with in-the-money puts and out-of-the-money calls, but the latter is more likely to have the put exercised than the call, which matters for tax purposes. Live and learn.)
This is not investment advice. I am not your investment advisor. I just thought it was fascinating to look at and try to understand; I've seen more potential arbitrage opportunities here lately than I've personally examined before in my life. (Not that I'm doing arbitrage, but when the same product -- TSLA stock -- is selling at many different prices, I'd rather get the most deeply discounted one.)
The merger arbitrage spread between SCTY and TSLA is shrinking, but the arbitrage spread on the options seems to be shrinking more slowly -- SCTY put options still have very high premiums compared to TSLA options, probably still trading on pre-merger-announcement volatility and fundamentals assumptions. I think perhaps the short-sellers and other stock traders are figuring out the merger faster than the options traders are? A lot of people specialize, so the options traders are probably not the same people as the stock traders.
I started looking at single stock futures to see if there was a third arbitrage opportunity for getting better entry points into TSLA, but (a) they're super thinly traded, and (b) it looks like you have to use a pretty specific, and short list of brokers -- mostly IB -- to trade them at all. There's no chance of me getting the paperwork done in time to trade those before the current arbitrage opportunity disappears.
P.S....anyone who followed all that can consider themselves quite financially literate. I explained this to several friends and family recently (most with years of investing experience and generally interested in investing) and only one of them didn't start having the "my eyes glazed over" or "tuned out" look.
Which probably explains why the market is not eliminating the arbitrage opportunities very fast!
TheTalkingMule
Distributed Energy Enthusiast
SCTY/TSLA moving inversely intra-day. Does that imply people picking up on these opportunities?P.S....anyone who followed all that can consider themselves quite financially literate. I explained this to several friends and family recently (most with years of investing experience and generally interested in investing) and only one of them didn't start having the "my eyes glazed over" or "tuned out" look.
Why I settled on a marketing degree is beyond me.
Shorting TSLA at Fidelity is a little less expensive now:
Lend TSLA: 10.5%
Short TSLA: 21.75%, 0 shares available to short
Lend SCTY: 49.0%
Short SCTY: 82.0%, 0 shares available to short
Lend TSLA: 10.5%
Short TSLA: 21.75%, 0 shares available to short
Lend SCTY: 49.0%
Short SCTY: 82.0%, 0 shares available to short
Can only post from my phone so I don't have screenshots, but the fee rate at IB for TSLA is 26.8% and SCTY is 87.0%
Fidelity rates:
Lend TSLA: 10.5%
Short TSLA: 21.0%, 0 shares available to short
Lend SCTY: 45.0%
Short SCTY: 82.0%, 0 shares available to short
Lend TSLA: 10.5%
Short TSLA: 21.0%, 0 shares available to short
Lend SCTY: 45.0%
Short SCTY: 82.0%, 0 shares available to short
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