Shorting ideas

[ItsAValueTrap]

I wouldn't really characterize land as a call option.  It's an asset that can fluctuate wildly in value... sometimes several times in real estate boom/busts for real estate-related land.

 

It comes down to what those assets are worth in the future.

 

2- On one side you have Fairholme and on the other side you have Greenlight.  Both of them have presentations on St. Joe... everybody can come to their own conclusion.  I don't have anything really insightful to add to either thesis.

[thepupil]

The equity of a heavily shorted and illiquid stock that is a small holding of a dedicated long term holder with a ton of buying power is a VERY levered option-like security.

 

Shorting JOE =/ shorting Florida Panhandle/Forgotten Coast Land

 

53 Days to cover

 

What's the cost of borrow? What's the catalyst?

[ItsAValueTrap]

The cost to borrow used to be around 14%.  It has died down to less than 2% right now I believe??

 

The puts aren't that expensive right now.  Shorting via puts can be more profitable and stress-free than shorting common stock... as long as the decay / premium cost on the put options is cheap enough.

 

2- In terms of borrow costs, some really expensive shorts right now are:

TSLA  80%+ ?  (I am still short this... ugh...)

ATPG ~70%  (covered this a long time ago when the borrow was "only" lower double digits, missed most of the move to 0)

ANGI, Yelp may be really really high

AIG used to be 35%

 

There was also the CMED (now CMEDY.PK) short squeeze a while back.  Fortunately for me I shorted a tiny amount and didn't cover.  (I also didn't make money since I shorted a tiny amount... short selling common stock is not a great way of making money.)

 

3- I'm not sure efficient markets would have borrow costs that are so high.  But that's another discussion hehe

 

4- I guess I learned something today... I didn't realize that the days to cover was so high.

 

5- Isn't short selling common stock *always* dangerous?  Look at Volkswagen.  It's a large cap stock and a short squeeze is not "supposed" to happen.  But it did. 

 

Though certainly for any stock with huge short interest (like JOE, TSLA, etc.), you should probably use a smaller position if shorting the common stock.

[thepupil]

Agree with everything you said. I prefer to use puts when shorting as well. JOE as just always struck me as very difficult. Einhorn can afford to make a cool speech and be his own catalyst but I don't understand the trade now that the cash bleed has slowed. It's jsut a big piece of overvalued land with a pot-committed guy that owns a big chunk and a hugely crowded short as % of float (used shortsqueeze.com for info, not sure if accurate).

[Mephistopheles]

Interesting thread. I don't have a short idea, but I have a question about lending shares. Is there a way for me to get paid when the shares held in my account are lent to short sellers, or is it only the broker that will make that money from lending my shares?

[benhacker]

Interesting thread. I don't have a short idea, but I have a question about lending shares. Is there a way for me to get paid when the shares held in my account are lent to short sellers, or is it only the broker that will make that money from lending my shares?

 

The only retail broker that will consistently provide at least partial interest payment for lent shares in all cases is IBKR.  You can see how they structure the service on their website.  I have not used this with them, but they are the only one to offer it in my experience.  Other brokers will occasionally make offers for specific securities to some of their customers, but it's more of a one off thing.

[ItsAValueTrap]

If the borrow cost is really high on the shares... you probably don't want to own them in the first place.  The short sellers tend to *really* know what they're doing (even if they don't make that much money).

 

In a similar vein... you can screen stocks based on short interest to look for short ideas / things you really don't want to own:

http://finviz.com/screener.ashx?v=111&f=sh_short_o30

(Though Fairfax is probably one of the exceptions that proves the rule.)

 

2- Any leveraged ETF will cost a few percent to borrow.  Needless to say... avoid them.  The reason why is because every day (many of) these ETFs have to trade in ILLIQUID markets.  To get the additional leverage, they may be trading swaps or other derivatives.  And it's not like they are trading S&P 500 futures either (which has a lot of liquidity)- they generally trade less liquid products.

So every day, they will lose a lot of money in spreads on their trades.  This is why short sellers pay a few percent to short them.  In really crazy markets like 2008-2009, I believe that some leveraged ETFs lost around 20%/year from trading costs.

[biaggio]

if you have a belief in JOE, instead of owning the stock and trying to lend it out, how about selling the put when they are expensive (collect the premium)? Collect the premium + if it is put to you then you'll own the stock.

-I have no experience with options (so this might be a dumb idea) but am looking at using them in a low risk way

 

[ItsAValueTrap]

If the interest to borrow the shares short is very high, usually put-call parity will break down and the calls will get cheaper and the puts more expensive.  This reflects the cost of borrowing/lending the shares.

 

From the short seller's perspective:

Instead of shorting the stock and paying really high interest, you can sell the calls and buy the puts.  This gives you essentially the same position as shorting the common stock, BUT you don't have to pay interest.  Of course things will balance out and the calls will start getting cheaper and the puts more expensive.

 

From the buyer's perspective:

If your broker isn't giving you good rates (or any rate) for lending out shares, you can buy the calls and sell the puts.

 

Unfortunately for the retail investor, order execution on your options order may not be great and you'll likely be paying bid/askspreads.  (Unless you go with Interactive Brokers / IBKR.)

[tradevestor]

Very informative.  How do avoid bid/ask spreads with Interactive Brokers ?

[ItsAValueTrap]

Sorry, to clarify:

 

You won't entirely avoid bid/ask spreads with IB.  However, they allow you to use up to 3 continuously updated volatility orders.  These will constantly update your option order's price as the underlying stock price changes.  You can try to have your order stay at the bid price and hope you get your order filled.

 

However:

A- The volatility order isn't updated that fast.  So if the underlying price moves very quickly in a split second, HFT algos may pick off your order.

B- You can't model any type of volatility curve or skew, though that may not be a big deal.

 

[fenris]

I don't think it matters too much to salespeople if you pay them in cash or shares.

But share-based compensation is a non-cash expense and you can show higher "non-GAAP adjusted EBITDA" to the investment community.