In my IB statement, under the interest header, I see a small credit for December, (USD Net Short Stock Interest for Dec-2016) and a smaller debit for March. Just out of curiosity, what determines whether I get a credit or debit for shorting stock? And why would I ever receive a credit for shorting stock?
Do you participate in IB's "Stock Yield Enhancement Program"? http://ibkb.interactivebrokers.com/node/1838 This might be the cause that you receive a credit. You of course create a debit if you short stock and have to borrow those.
Yup! HobbyTrading is right. Anybody with a PM account automatically participates in the stock yield enhancement program where IB automatically lends your stock to other shorters on a daily basis based on the SLB rates. Stocks like GPRO sometimes generate a daily rate of 20% or more. I keep an array of stocks with high lending rates to generate some additional income along with covered calls. Its a wash in terms of actual loss of equity in the stock vs. income from calls + stock lending. Go to account management and generate a "Legacy" statement and you'll see what stocks received interest. Search for "Broker Interest Received"
@InTheMaking are you sure about "automatically participates"? I was under the impression that you have to opt-in for this program. However, I can't find the page under account management where you can change this opt-in/opt-out. So I'm not sure about this.
Pseudo-Automatic, when you are approved for portfolio margin. Manage Account > Trade Configuration > Permissions Check/Uncheck box "Stock Yield Enhancement Program"
Interesting...I used to be in the yield enhancement program, but I withdrew as it caused me to lose out on some qualified dividends (got payment in lieu instead of dividend which is taxed at a higher rate). I was wondering if it was possible to collect some interest for shorting stocks. Didn't think it was.
The stocks that benefit the greatest from the yield enhancement program usually are not dividend based stocks. DOW30 and mid-cap SP500 companies have yields at 1-2%. Stocks like GPRO gives daily interests of 20%+ depending on their SLB rates and volatility.
True, but that interest does not come free. You have to hold those shares. And if it's volatile, then the ATM options to hedge them must also be expensive. I would expect something like a MSFT or PG to pay very little yield, but I feel more comfortable holding either of those over a GPRO...unless you want to own GPRO anyway...maybe you feel that it's so cheap, it can't go any lower and won't go bankrupt anytime soon. But in that case, shorting a put or selling a call / long stock should yield more.
Yup! This works better to the large funds who may carry a large array of stocks that were acquired for lower prices and are properly hedged. One portfolio manager who I've been chatting with explained to me that large institutions maintain a small book of business (5% to 7%) exclusively to take advantage of SLB rates. Evidently, if one is properly hedged (to the downside) with income generation, the stock lending can yield an additional 20% return. I've been acquiring SNAP shares since I heard this guy and so far, IB has yet to borrow any of my stock. I'll monitor this through an earnings event. If nothing happens, dump SNAP.
I dunno man...if it works for you, then great, but that sounds a bit risky. Why not sell a covered call and hold the stock. The stock will still be lent out until the call is assigned.