Fidelity is still paying 1.5% to lenders, but a three-share odd lot of mine was just lent out. Indicates to me that at a minimum, shorts are not covering during this rally. Otherwise, Fidelity would not have bothered with such a small odd lot.
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I had a 47 share odd lot in one Fidelity account lent out today but I have a 3 share odd lot in another account that wasn’t taken.
marvinat0rz
Member
Seems very weird if there is not much covering going on during the recent run-up. Dangerous, even. Does anyone have more data to corroborate this?
adiggs
Well-Known Member
99.999999% of the time, the broker returns their own shares when the person / entity that borrowed the shares isn't able to perform.
But in that other fraction of a %, the person / entity that was short has also deposited with a 4th party, an amount of cash equal to either 100 or 102% of yesterday's closing price of the stock. So "unable to perform" on the part of the short seller means the underlying stock has move hard against them TODAY, but they had enough cash to buy back the stock at yesterday's close, as evidenced by the fact that they have that amount on deposit and out of their direct control.
Also not in the direct control of the broker.
As a lender of shares, my counter party isn't the short seller - it's my broker. So when I ask for my shares back and the short seller can't provide them, I DON'T CARE. And neither does my broker - we both know that its the broker that borrowed my shares and its their livelihood and existence on the line. That's why they return their own shares
But if they can't, then they go into default, and there's going to be a whole pile of lawyers getting rich on the bankruptcy. In the meanwhile, in lieu of my stock back, I get the 100 or 102% of cash that is being held on deposit with me as the beneficiary in the event that my counterparty - the broker - defaults on my loan to them and can't return my shares. And its in that form so I get my cash value (not stock) back immediately and don't need to wait through bankruptcy proceedings to be made whole.
It's also why if you're short the stock, you keep a whole bunch more cash in your margin account than you need today to fully fund the cash on deposit with the 4th party. And why your broker will call you, but not necessarily wait very long for you to call them back, in the event that the underlying stock moves heavily against you and they issue a margin call.
Because the broker is also out on that bankrupty limb with you. They don't like that limb having any bounce in it
The best data I have seen are in Ihor Dusaniwsky's reports (on his Twitter feed) suggesting covering during the recent run up has been modest. This is corroborated by anecdotal evidence from Fidelity and IB showing interest rates have dropped only modestly recently. And it sounds like more shares have gone out today at Fidelity which may mean net shorting today into the run-up.
According to Ihor's last report, we were down about 3.5M shares short from the peak (~41.5M to ~37.9M) but most of the covering seems to have predated the recent run.
One interesting thought experiment (or perhaps fantasy) that I have indulged in over the last day: What would happen if Google, Tencent, or another company were to buy a 5% or 10% additional strategic stake in Tesla on the open market? The last three weeks have felt like there is a big accumulator in the market.
Ihor says probably only about 47 million shares are available to short. A 5% or 10% additional stake that was put beyond the hands of the shorts could cause a real honest-to-goodness squeeze.
Ihor says probably only about 47 million shares are available to short. A 5% or 10% additional stake that was put beyond the hands of the shorts could cause a real honest-to-goodness squeeze.
Chickenlittle
Banned
Interesting, I have had 60 shares borrowed today. Usually fidelity will loan out hundreds at a time. Previously smallest amount 400 shares. Can’t believe 60 worth while amount to borrow. There are another thousand I authorized to loan out that they could have taken. Anyway I believe they are at 5000 cars a week (starting to make performance cars) so will start to demand shares back. Hope others will act too
I don't think you can conclude there was no covering, especially in the face of high total volume. I think some shorts were covering, while others were thinking "Gee, I was short before, now the price is even higher, it must go down soon... short some more!".
adiggs
Well-Known Member
After all, if it was a good short at $270/share, then it's a screaming good short at $370. And just imagine how good the shorting will be at $470....
99.999999% of the time, the broker returns their own shares when the person / entity that borrowed the shares isn't able to perform.
But in that other fraction of a %, the person / entity that was short has also deposited with a 4th party, an amount of cash equal to either 100 or 102% of yesterday's closing price of the stock. So "unable to perform" on the part of the short seller means the underlying stock has move hard against them TODAY, but they had enough cash to buy back the stock at yesterday's close, as evidenced by the fact that they have that amount on deposit and out of their direct control.
Also not in the direct control of the broker.
As a lender of shares, my counter party isn't the short seller - it's my broker. So when I ask for my shares back and the short seller can't provide them, I DON'T CARE. And neither does my broker - we both know that its the broker that borrowed my shares and its their livelihood and existence on the line. That's why they return their own shares
But if they can't, then they go into default, and there's going to be a whole pile of lawyers getting rich on the bankruptcy. In the meanwhile, in lieu of my stock back, I get the 100 or 102% of cash that is being held on deposit with me as the beneficiary in the event that my counterparty - the broker - defaults on my loan to them and can't return my shares. And its in that form so I get my cash value (not stock) back immediately and don't need to wait through bankruptcy proceedings to be made whole.
It's also why if you're short the stock, you keep a whole bunch more cash in your margin account than you need today to fully fund the cash on deposit with the 4th party. And why your broker will call you, but not necessarily wait very long for you to call them back, in the event that the underlying stock moves heavily against you and they issue a margin call.
Because the broker is also out on that bankrupty limb with you. They don't like that limb having any bounce in it
Yep. The broker is on the hook to return the shares, and must do so if the *broker* can afford to return the shares. Fidelity, Schwab, IB, etc. wish very strongly to not go bankrupt. The only way the broker would return the collateral cash rather than the shares is if (a) the broker goes bankrupt or (b) it is simply impossible for the broker to buy the shares (for instance, if literally nobody would sell them and trading halted), or (c) it is impossible for the broker to buy the shares for anything they can afford, because the price is many multiples of the collateral value (as might happen in an extreme short squeeze, but only if it persisted for weeks).
Short-sellers give brokers permission to:
(1) raise margin collateral requirements arbitrarily and at any time
(2) raise margin interest rates arbitrarily and at any time
(3) forcibly buy back TSLA at market prices, covering the short even if the short-seller didn't want to
(4) liquidate other securities held by the short-seller at any time to cover margin requirements or to pay interest to the broker
(5) *go after the short-seller in court to collect any assets they have anywhere else*, including their house and car
I have no idea why anyone would ever agree to these terms, but short sellers agree to them. Basically the broker can screw over a short seller at will and the short seller has no recourse whatsoever.
The brokers will clear out the short-sellers' accounts long before the broker defaults, and will use that to buy TSLA to return to the stock lenders. In fact, they'll probably collect the short-sellers' homes and cars before even considering defaulting on the stock lenders.
Since I don't think my broker will go bankrupt, and I trust them to liquidate the short sellers and take their homes and cars before they default on me, the only scenario where I get the collateral rather than the stock is if there's literally not enough stock for sale on the market at any price. Could happen but it doesn't seem close to happening.
Most of my shares have been lent out for the last ~2 months, but I have 50 shares that just refuse to be lent out. Also just saw the 1.375% rate drop at Fidelity.
According to a third-party website (courtesy of @ValueAnalyst on Twitter), it appears lending rates at IB edged up to 2.7% from 2.6% this afternoon. So seems to be a mixed bag between Fidelity and IB. https://iborrowdesk.com/report/tsla
Is there one that seems to lend out more consistently and at a higher rate than the other? I generally try not to keep all my eggs in one basket but considering the big difference between Etrade and the others it sounds smart to switch brokers, Etrade was about .4% last time I looked.
adiggs
Well-Known Member
Take me for a single anecdote
For a retail trader, I think of IB and Fidelity as neck and neck for the pole position in this race. I was already at Fidelity, so I stayed put rather than switch to IB. I also trade REALLY infrequently - IB was going to noticeably increase my account costs to switch to them (I rarely have 5 trades / year, and I don't believe in paying monthly or annual account maintenance fees).
My previous broker didn't have a program (Ameritrade), and the other brokers I've seen mentioned look like pretty low rates.
I believe Fidelity's program update, about a year ago, was to pay 60% of the interest they collect to the lenders of the shares. So if they're lending out at 3%, then they're paying 1.8% to borrow the shares. IB is at 50% of what they lend for (or at least they were when I was researching this a couple of summers back - stuff changes).
It's also the case that with most companies you own, most of the time, you won't be paid anything to lend out your shares. The brokers are strongly incented to satisfy short demand out of their company owned shares. TSLA is the only company I own (I don't own many) that has ever had any of my shares lent out. That includes most of the last year when TSLA was listed as hard to short, and my shares weren't lent out.
It depends on your account. If you have margin/options trading, no, you don't know and you don't make anything if they do. But in a more basic account I'm pretty sure they have to tell you, at least.
You have to apply to join the Fully Paid Lending program, there are certain account minimums to meet in order to qualify in the first place.
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