Securities Lending: Can a retail investor make money?

[EdWatchesBoxing]

Happy New Year everyone!

 

I am trying to figure something out with respect to securities lending. As a retail investor with a margin account, my understanding is that the broker is able to loan out stock in your account to short sellers. So I imagine the broker pockets the borrow rate fees on the stock. Can we get our share of these fees? I read about how Buffett loaned out some stock to make additional money on the borrow fees.

 

I imagine that the borrow rate on Fairfax was very high when it was attacked by short selling.

 

I hope others have more knowledge in this area.

[Guest ValueCarl]

Long ago, Dr. Patrick Byrne recommended this company along with its founder during a speech when visiting NY regarding illegal naked short selling.

 

Other than moving your account over, or the specific securities you choose to lend, you will be hard pressed to gain clearance from the retail brokerage space to infringe on their own margin agreement which gives them license to lend your property at the going rates to be credited to their accounts versus yours.

 

You might do a better service to the companies you enjoy owning by removing "margin" entirely and establishing a "cash" only account which should prevent the retail broker from lending them to miscreants, at least legally speaking.

 

I have been told that, Fairfax Financial chooses NOT to lend their securities in a manner such as you are describing and contrary to your Warren Buffett claim.

 

If there's one thing I can say about John Tobacco, the guy knows how to market!   

 

http://locatestock.com/

[scorpioncapital]

Of course the retail investor can get paid for securities lending. Have you seen IB's new feature allowing this?

 

 

[SharperDingaan]

 

As long as the shares are in a cash only account, & your 'margin' account is in some other institution - you can loan them as you wish. Most often you will not get enough to warrant the risk, & getting them back can be something else (ie: FFH share loans).

 

Its more reliable to write deep out-of-the-money covered calls (long stock, short call).

 

SD

[Guest ValueCarl]

Please provide an illustrative example, in today's market where "premiums" received from selling deep "out-of-the-money" calls provide beneficial income at the same time subjecting its underlying owner to losing their stock if it is called away?

 

<Its more reliable to write deep out-of-the-money covered calls (long stock, short call).>

[EdWatchesBoxing]

I have been told that, Fairfax Financial chooses NOT to lend their securities in a manner such as you are describing and contrary to your Warren Buffett claim.

 

OK, you made look for the Buffett reference and here it is (See "Selling Berkshire Short")  ;): http://www.ntimc.org/newswire.php?story_id=4121&print_page=true

 

As for Fairfax, I wasn't talking about Prem lending out his shares, I was just thinking the borrow rates would have been high for those willing to lend their shares out. Much like  over the Sears Holdings past year.

 

Of course the retail investor can get paid for securities lending. Have you seen IB's new feature allowing this?

Got to look into this, thanks! I've been looking into IB for a while (procrastinating) because of their programming capabilities and commission structure.

 

 

As long as the shares are in a cash only account, & your 'margin' account is in some other institution - you can loan them as you wish. Most often you will not get enough to warrant the risk, & getting them back can be something else (ie: FFH share loans).

 

Its more reliable to write deep out-of-the-money covered calls (long stock, short call).

 

SD

 

Makes sense SD, this is something you can do in an RSP to create additional income. Buy long, sell volatility.

[Guest ValueCarl]

I know exactly what you're talking about, and I stated that Watsa doesn't do that versus Buffett, who you are attempting to prove does.

 

Would any of Fairfax fans like to dispute my claim?

 

And, I hope these kinds of threads aren't sneaky advertisements for certain firms. IMO 

[Guest ValueCarl]

I've asked for a CASE STUDY by Sharper D on this thread to substantiate his claim only to get blank stares.

 

Few will learn finance in an environment like that, one where clarity is not complete. 

 

Harry Long is taking a more useful approach, from what I saw.

 

In the mean time, this site is utilizing the company names of Buffett and Watsa to garner demand and attention as though there is the potential to find, "The Holy Grail."

 

Otherwise, just start ringing some bells to make people salivate.

 

I'm here to learn, so please, teach me. Oh, and yes, I too seek "The Holy Grail!"  IMO   

[SharperDingaan]

 

ValueCarl: Its too bad that you seem to have a problem with factual accuracy. The actual 'ask', only 2 1/2 hours earlier, was quite a bit different.

 

"Please provide an illustrative example, in today's market where "premiums" received from selling deep "out-of-the-money" calls provide beneficial income at the same time subjecting its underlying owner to losing their stock if it is called away?"

 

 

[SharperDingaan]

 

If the current market is 50 & the option writer writes a short-term call option with a strike at 70, the writer has written a deep out-of-the-money call. If the volatilty is fairly high there will probably be a modest premium. If the strike is far above the current market, & the remaining time is quickly eroding, the odds on the call writer actually getting called are fairly remote. If you are called you have the stock & will make a gain of 20. In the meantime you have the call premium, & that options strike, premium, & expiry date were set by you; as if you didn`t like the terms you wouldn`t write.

 

[Guest ValueCarl]

SD, if you'd prefer I'd be happy to offer up a play I did tied to FFH not too long ago, and capitalized handsomely exactly as you're stating, i.e., deep out-of-the-money covered calls! 

 

I'm not exactly sure what you're suggesting, but it seems like I may have interrupted a real time play or trade you were making tied to your concept yet to be shared?  ??? 

 

All the best, and remember, I'm just here to learn with 1000 other members who may share similar goals and aspirations.  ;D     

[EdWatchesBoxing]

I know exactly what you're talking about, and I stated that Watsa doesn't do that versus Buffett, who you are attempting to prove does.

 

Would any of Fairfax fans like to dispute my claim?

 

And, I hope these kinds of threads aren't sneaky advertisements for certain firms. IMO 

 

Reread my initial post. I didn't say anything to suggest that.

[Uccmal]

Dont waste your time Eddie.

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=1678.30

 

 

[Guest ValueCarl]

That's a good hypothetical example, if and when option market makers are providing decent premiums for far out strikes mostly bolstered by volatility as you say.

 

I did something a little more risky a couple of months ago with FFH when it got ahead of its normal trading range tied to BV, i.e., the usual trading volatility.

 

I reached out and wrote a $400 strike January, 10, out-of-the-money covered calls with the stock at $370-$380, a then near term high. I took in a $16 premium (opening sale covered) for same anticipating to close it on the inevitable pull back.

 

I closed it for $6.00 (buy to close) on the pullback to the low $350's after some time expired, while reading the voo doo charts (stochastic) so many trader/investors seem to store their faith in.

 

The $10 per contract ($16 less $6) "before tax" profit represented a 2.71 percent dividend in my mind (10/370) tied to FFH's BV in the two months it took before I closed my position. That's an annualized > 16.26 percent return for those who like to calculate magical compounding machine math!   

 

As always seems to be the case with these things when one is fighting criminals in the pits of the exchanges, however, I had to first lose "unrealized" money with that strike having gone almost to $20 after I sold it at $16! They are SURE to SHAKE TREES in order to find their money and SCARE securely profitable plays off of their books, whenever they can according to what they see as current.

 

I had to be content that if FFH was called away from me at an exit price of $416.00 pps ($400+16 covered call premium) less transaction costs, I wouldn't be disappointed.

 

That initial experience only made me madder though-option masters shaking my tree-when looking out to the yet to be announced FFH dividend which should have been forthcoming by or before my expiry.

 

I did contemplate SELLING SOME MORE NAKED CALLS at that juncture, but I refrained considering the nature of the conservative partner who I work with. I knew Stevie Cohen's crew wouldn't be giving up the ghost that easy, at least at that snap shot in time.

 

That's why I love American options vs. European, by the way. I can choose the time to take my pound of flesh or drain my own blood in between.     

 

And, I simultaneously expected more FFH fireworks from the Stevie Cohen crew and their corresponding quagmire that they got themselves into which might take the stock to $450 or $500 before the run ended heading into my expiry which is still ahead of us, mind all. 

 

I wasn't going to let that stock be taken from me, so I CLOSED it on the PULLBACK I initially hoped for/expected, and am ready for some real stock appreciating COIN when BIG PREM puts it to that Devil Worshipper, Stevie Cohen, of SAC!  8)

 

                 

[Guest ValueCarl]

You didn't suggest what, Eddie? You said Buffett loans his shares for a fee, and I said from my knowledge of Watsa, he doesn't!

 

What more should I know that you don't! imo 

 

[twacowfca]

I know exactly what you're talking about, and I stated that Watsa doesn't do that versus Buffett, who you are attempting to prove does.

 

Would any of Fairfax fans like to dispute my claim?

 

And, I hope these kinds of threads aren't sneaky advertisements for certain firms. IMO 

 

 

Oh shucks!  You found us out.  When did you realize what our board's real purpose was?

[EdWatchesBoxing]

Dont waste your time Eddie.

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=1678.30

 

 

 

lol. I won't waste anymore time.

 

 

[ERICOPOLY]

You might do a better service to the companies you enjoy owning by removing "margin" entirely and establishing a "cash" only account which should prevent the retail broker from lending them to miscreants, at least legally speaking.

 

The "miscreants" (as described by Byrne) don't borrow shares: they naked short them.

 

Your suggestion for cash accounts as a means of cracking down on legal shorting prevents honest participants like Watsa from shorting... and he is not a "miscreant".

 

Cutting back on shares available for lending might increase the demand for naked shorting... as naked shorting is a means of avoiding the high cost of borrowing shares.

[Guest ValueCarl]

Why is it I continue to get the feeling that, the inner eye of this board represents a pack of hyenas-notice I don't say lions-more concerned with protecting the images of the great value investors whose company names are being attached to this website versus applying a kindred spirit, one intent on establishing the outstanding standards and principles which continue making those men and their companies great?

 

If I wanted to waste my time, there are plenty of other sites including but not limited to Yahoo Finance message boards where I can experience noise, nonsense, innuendos, non substantiated facts, missing explanations, fear mongering and such which seems to be being offered to me here!

 

Like me said, I'm just here to learn with 1000 other members who might include young investors looking to appreciate finance in the way that it was originally taught by, "The Father of Value Investing," Mr. Benjamin Graham. Let's keep this in mind by not just talking the talk, or marveling at Messiahs and begin using fact and analysis in order to learn from each other.  

 

I must say, the recent encrypted message regarding Ben Hacker who is being quoted repeatedly-his last comment and apology- with implications that he closed communication with me across the whole board because I pointed out the back handed slaps I felt he was attempting to hit me with, ones I would not tolerate from any man nor should you or others here, is insulting and quite frankly, childish, considering his wisdom was ultimately proven correct about stupid assumptions silly men are always making and usually end up being wrong about.

 

For what it's worth, the man behind the curtain, this Ben Hacker, was wrong on couple of counts which I helped him prove for himself.  

 

You see, as you should have become aware of by now, I am very long, strong and bullish on both FFH and LVLT, the thread which I began in order to learn more about each of those names inclusive of the fund manager's own investment thesis for aggressively pursuing such risk according to the curve.  

 

If you would read the full quote you're quoting me with on this thread, you would also see the portion stating, "at least legally speaking."

 

Legally speaking, if a man or woman wants to safeguard their property from being loaned out, they would establish a cash only account eliminating margin agreements which enables brokers to earn a fee for lending clients' property out otherwise.

 

Knowing what Dr. Byrne has taught "Mr. Market," much of which surrounds a nefarious group or cabal of dubious operators in and around Wall Street aided and abetted by the SEC and prime brokers, however, should make one suspect as to whether or not if the whole market entered into cash account only agreements, the criminal element tied to "illegal naked short selling" would ever cease.  Milken, Madoff, Icahn, Cohen, Soros, along with scores of others including the organized crime families they are attached to, are a very powerful group. You'd be better served fearing those types while seeking restitution through the proper authorities inside the proper venues versus attacking little ole me on this board.

 

Even Dr. Byrne is calling for a legitimate "pre-borrow" rule in order to make the rules fair again-legal shorting only-in the middle of the game. There are other remedies which some of your board members here are seeking too, tied to having institutions including Ben's cherished Fairfax, report their net long or short positions including the accounting effects from shorts, hedges and even including a factor of "index hedging" which acts as an offset to a long position being held in their accounts.

 

I'm not here to scare or intimidate, just to share and learn!

 

I'm not opposed to legal shorting nor loaning my shares in a margin account if appropriate with all the necessary safeguards and protections assuming reasonable returns can be made either.

 

Eddie wants to loan his shares in the name of Buffett! So be it then. Why doesn't Eddie teach the board exactly who, what, where, when  why and how Buffett did this so that others can learn too? Unleash "The Secrets of the Temple."

 

You seem to want to short legally, or possibly use other hedges tied to indexes in the name of Watsa! So be it then. Please cite Mr. Watsa's own words to his shareholders identifying his current hedges, and then identify the specific vehicles one might use tied to the content of their portfolios in order to accomplish your goal.    

 

Otherwise, I am going to consider this site no different than others where charlatans and hucksters lurk in order to pick the pockets of unsuspecting rubes while they wax on about the names of their personal messiahs Buffett, Watsa and/or others.

 

As for me, you can love me or hate me, I don't give a rat's you know what, but, you're almost always going to hear the truth as I see it, even when it is not palatable for you.  >:(

 

Cheers and Happy New Year!  ;D    

   

 

       

 

           

[smw397]

Why is it I continue to get the feeling that, the inner eye of this board represents a pack of hyenas-notice I don't say lions-more concerned with protecting the images of the great value investors whose company names are being attached to this website versus applying a kindred spirit, one intent on establishing the outstanding standards and principles which continue making those men and their companies great?

 

Too much caffiene?

[StubbleJumper]

Why is it I continue to get the feeling that, the inner eye of this board represents a pack of hyenas-notice I don't say lions-more concerned with protecting the images of the great value investors whose company names are being attached to this website versus applying a kindred spirit, one intent on establishing the outstanding standards and principles which continue making those men and their companies great?

 

Too much caffiene?

 

I must say that I don't quite get what Carl's all about.  He comes on this board an writes a cryptic message about Level 3, with no discernible thesis.  The thread runs hither and yon, taking about 30 replies to basically say nothing.  In the end, he focuses on developing a precise share count which is a roughly useless exercise.  To this date, I still don't know what the hell was the point of the original post.  Was it to solicit views on Level 3's prospects?  Was it to chide Prem for making a mediocre investment (medium return, super-high risk)?  What was the purpose of the thread?

 

Now he's on other threads portraying himself as a victim because other people on this board do not live in his very precise world where somebody is either 100% in favour of shorting or 100% against shorting.  Get over it!

[nodnub]

Why is it I continue to get the feeling that, the inner eye of this board represents a pack of hyenas-notice I don't say lions-more concerned with protecting the images of the great value investors whose company names are being attached to this website versus applying a kindred spirit, one intent on establishing the outstanding standards and principles which continue making those men and their companies great?

 

Too much caffiene?

 

I must say that I don't quite get what Carl's all about.  He comes on this board an writes a cryptic message about Level 3, with no discernible thesis.  The thread runs hither and yon, taking about 30 replies to basically say nothing.  In the end, he focuses on developing a precise share count which is a roughly useless exercise.  To this date, I still don't know what the hell was the point of the original post.  Was it to solicit views on Level 3's prospects?  Was it to chide Prem for making a mediocre investment (medium return, super-high risk)?  What was the purpose of the thread?

 

Now he's on other threads portraying himself as a victim because other people on this board do not live in his very precise world where somebody is either 100% in favour of shorting or 100% against shorting.  Get over it!

 

SJ, I couldn't agree more.  

 

ValueCarl,

 

You have wasted a lot of space on this board trying to make irrelevant points about other board members motives and reaction to you.

 

It might help to consider this; the gold standard for this board would be a post that is clearly written on investment topics. If you have questions for other board members they are best written concisely, clearly, and politely in non-agressive language.

 

If you follow this pattern, you will get much better response from the board members here. If not, then the members of this board will think you are here to waste our time and muddy the waters. If you write like a duck and act like a duck don't be surprised when someone calls you a duck.

 

 

[twacowfca]

May I recommend reading The Omega 3 Connection by Dr Andrew Stoll.  He did groundbreaking work at Harvard, showing that long chain N-3 fatty acids from fish oil help modulate the synaptic transmission through the brain's neuronal membrane.  This helps to prevent attacks of mania with confusing flights of ideas and to clarify thinking in general.  Omega 3"s are generally deficient in the diet, and We can all benefit from taking it, as I know that my own thinking is at times not entirely clear.

[beerbaron]

May I recommend reading The Omega 3 Connection by Dr Andrew Stoll.  He did groundbreaking work at Harvard, showing that long chain N-3 fatty acids from fish oil help modulate the synaptic transmission through the brain's neuronal membrane.  This helps to prevent attacks of mania with confusing flights of ideas and to clarify thinking in general.  Omega 3"s are generally deficient in the diet, and We can all benefit from taking it, as I know that my own thinking is at times not entirely clear.

 

LOL