Upon options exercise leaving you short a hard-to-borrow stock...

Discussion in 'Trading' started by Option Trader, Feb 7, 2010.

  1. 1) If your broker claims a particular stock is hard-to-borrow and no shares are available at their clearance firm, and they DON'T want to borrow shares from the "street" even though shares are YES available...

    2) Then an options exercise leaves you short the shares, can the broker force a buy-in? Or can you prevent that from happening, citing there are shares available on the street?
  2. Anyone?
  3. nickdes


    This happened to me once. I can't remember what what put I had though. I could not exercise a put because no shares were available.
  4. Quite surprising.

    However, here, I am short calls in-the-money, and upon options expiration, my account stands to show short the stock regardless of availability by broker/ clearance firm.

    My question is: can they insist they want to buy-in? Or must they accept my alternative proposal that they get the shares from the street?
  5. heech


    I seriously doubt you can force your broker to do anything on the basis of what you say is available "on the street". If your broker doesn't want to pay the premium to borrow whatever shares, then your only real option is to change brokers.

    Options are priced with this real world constraint in mind. Hard to find stocks have very cheap calls and very expensive puts, and put/call parity doesn't hold.
  6. The broker can pass through the cost which can maybe be 1/2 cent per share.
  7. You should have this discussion with their compliance area. If you intentionally sold a deep call after being told the stock was hard to borrow you open up the can of worms that is a reg SHO violation.

    The short answer is talk to their compliance area.
  8. Actually, the stock is only about 5% in the money (A $1 strike price).

    I am writing this thread because the compliance department seems to say shares are not available to borrow, and they don't look furthur--even though Locate Stock will tell you they can locate this stock. (I also personally noticed by another broker shares of this stock are yes available)
  9. heech


    And some brokers, like IB, do exactly that. If you're not familiar with the way they price hard to borrow, search on the forum. Some stocks at IB have interest charges as high as 40-50% annualized. Some are still not available period.

    If your broker doesn't offer that, and also doesn't have single stock futures, then you're sol.
  10. zdreg


    are u talking retail?
    #10     Feb 7, 2010