Registered: Oct 2011
10-27-11 11:19 AM
Quote from sondermark:
I am working on a strategy that requires me to short stocks that are expensive to borrow. In many cases it is impractical to create synthetic short stock via options so I would like hear your opinions on an alternative way.
When selling stocks you need to deliver the sold stock to the buyer within three days, so to sell short I need to borrow the stock from someone before this deadline. To avoid this I am considering to repeatedly selling short and covering within three days (when it is cheaper than to borrow the stock) for the entire period where I need to be short.
Anyone know if this is allowed?
That's not the way it works. If you're selling a stock short, that's NOT on the easy to borrow list, you MUST get a locate from your clearance firm,before you short the stock. If you get the locate, it's not your responsibility to find stock to deliver. The short borrow responsibility goes to the clearance firm which is the one that's short, because in a margin account your positions are held is 'street" name, not yours. If they fail on delivery, they will let know know if they have buy in risk, and how much of that buy in will be your responsibility.
Synthetic shorts through either options or synthetic products that some firm offer, typically cost more that the stock borrow, but remove all or most of the buy in risk. For me, I like to keep it simple. I get a locate and sell short. If I can't get the locate, I use options to get short deltas.