WSBers playing with fire and getting burned: NKLA hard to borrow early assignments on call spreads

Atikon · Jun 26, 2020

newwurldmn said:
You filled out a disclosure agreement that said you understand the risks involved.

You should have understood the risks of hard to borrow stocks. Further, you should have researched the fact that the stock was hard to borrow.

A broker will stop you out if you exceed your allowed margin (something most users here complain about with Interactive Brokers), but it’s not their job to figure out if you position will lose or earn or put you under.
More...

but it kind of is, especially if they set the margin requirement. I get my verticals assigned as two sperate position instead of an iron condor (bp reduction at IB=2xwhat it is at other brokerages), one would think, that they don't want retail to blow up

traderjoe12345 · Jun 26, 2020

newwurldmn said:
You filled out a disclosure agreement that said you understand the risks involved.

You should have understood the risks of hard to borrow stocks. Further, you should have researched the fact that the stock was hard to borrow.

A broker will stop you out if you exceed your allowed margin (something most users here complain about with Interactive Brokers), but it’s not their job to figure out if you position will lose or earn or put you under.
More...

I do understand the risk of hard to borrow stock. The big issue I have is there was no indication that it was a hard to borrow stock, or the current rate associated with it ( I know that can change instantly ). The trade desk was the only one who had that information. Should I be responsible for guessing on each trade if I'm going to get screwed with an almost 1000% fee or does the broker have some accountability in this?

traderjoe12345 · Jun 26, 2020

newwurldmn said:
but it’s not their job to figure out if you position will lose or earn or put you under.
More...

I completely agree with this statement. I also think if they know something that I have no way of accessing and they do absolutely nothing to mitigate the risk , they share responsibility.

Cabin111 · Jun 26, 2020

Yeah, the SEC should write something to protect people against "hard to borrow". Should they restrict/block options on those companies?? Maybe, but at this time it is not the law. Require a $100,000.-$1,000,000. as a back up in some CD or secured shares of stock somewhere? People would be pissed off...

If you are naked, YOU ARE NAKED!! It doesn't matter if it's Apple/Amazon or Lehman Brothers, Enron, or Luckin. Bad things can and do happen. I heard Amazon is clubbing baby seals to make their cardboard boxes!! Run with the big boys...You can get burned. Stick your money in QQQ, S & P 500, or buy a house...Sleep well at night. Your call...

newwurldmn · Jun 27, 2020

traderjoe12345 said:
I completely agree with this statement. I also think if they know something that I have no way of accessing and they do absolutely nothing to mitigate the risk , they share responsibility.
More...

It would be nice if they told you the borrow fee ahead of time.

However, if they don’t provide that information, you can choose to go to a broker that does.

newwurldmn · Jun 27, 2020

traderjoe12345 said:
I do understand the risk of hard to borrow stock. The big issue I have is there was no indication that it was a hard to borrow stock, or the current rate associated with it ( I know that can change instantly ). The trade desk was the only one who had that information. Should I be responsible for guessing on each trade if I'm going to get screwed with an almost 1000% fee or does the broker have some accountability in this?
More...

It’s available in the options market. Also there are services that will tell you want the average borrow cost is. More over the borrow cost can change very quickly (like the price of a stock).

All this being said, the stock borrow-loan markets are one of the most opaque. It’s part of the risk of doing business.

tonyf · Jun 27, 2020

TheGoonior2 said:
A few items to note (all based on IB)
1) They can't loan out your shares unless you authorize it, hence the "stock yield enhancement" program (which you have to opt in to...it is not active by default: https://ibkr.info/node/1838. Note that you can't select piecemeal. You either allow them to borrow any shares in the account or none. You probably want to read the specifics of the program where they go into the details on the process. Note: 1) You can still sell calls against the stock, 2) you can sell your stock at any time, 3) you can opt out of the program at any time.

2) Nothing guarantees they loan your shares out. If they do, you split the rate 50/50 (can't recall the link, but dig on their site or ask customer service). Currently on NKLA, it's 897%. You can check this by adding a "shortable" column on TWS. It'll be lime green for easy to borrow and dark green for hard to borrow and will show the number of shares available for shorting.

3) Interest is calculated based on the closing price. Interest is an annual figure, so the daily rate is approximately %/100 * Closing Value/365. There's also a bit of rounding done: https://ibkr.info/article/1146 so it won't exactly match the above calc.

4) If you are assigned and don't have shares, you automatically are going to incur 1 day of interest. You won't know if you have been assigned until about 10pm PST (which is when I see assignments/expiration post in IB). I seem to recall IB saying they post it after their daily system update which is normally around that time, but I can't find that link. You can easily confirm it with an IB chat with customer service. If you are assigned on Friday, you're obviously on the hook for two days.

5) Basically you have the extended session (5pm PST) to pick up shares to cover your assignment. After that, you have to wait for pre-market, which is 1am PST the following day, so it won't matter if you cover then. If there is not a lot of time decay left in your shares, there is a pretty good chance you can be assigned, especially if it's getting near expiration. There's always a chance that somebody who knows (or think they know) something which may make them want your shares and be willing to eat the premium.

6) The fee won't hit until settlement (T+3), so it takes a few days to post in your account. You'll see it in the "MTD interest"

If I missed anything or posted any errors, please let me know (especially if def from IB wants to chime in).
More...

Do you know what the rate is to short NKLA warrants? I cant find this info on TWS...

m1nt · Jun 27, 2020

tonyf said:
Do you know what the rate is to short NKLA warrants? I cant find this info on TWS...
More...

A general reference is Iborrowdesk.com.

It lists updated rates for IB. For other brokers, who knows? Call the trade desk? I don't use IB, but monitor cost basis daily on all of my accounts.

tonyf · Jun 27, 2020

m1nt said:
A general reference is Iborrowdesk.com.

It lists updated rates for IB. For other brokers, who knows? Call the trade desk? I don't use IB, but monitor cost basis daily on all of my accounts.
More...

Thanks for that but acn you see warrants on this site?

m1nt · Jun 27, 2020

nope. what is it NKLAW? maybe it isn't shortable.