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6

As 'sheegaon' suggested, you can solve for an implied interest rate -- which is not necessarily the cost of borrowing the underlying stock -- using put-call parity. As you probably know, an implied volatility algorithm increases and decreases its implied volatility guess until the theoretical price and market prices of an option converge. Similarly, to ...


5

The cost of the hedge does not appear directly in the price for any one option, but rather will appear as an apparent violation of put-call parity. However, due to differing demand for puts and calls, this merely widens the arbitrage bounds ordinarily set by put-call parity, but does not imply a single implied borrow rate. In other words, the borrow rate ...


4

Suppose that the given condition is true. You want to construct an arbitrage portfolio to take advantage of this. Now, $d$ is an interest rate, and the condition suggests that $d$ is too high. So you will want to receive $d$ in order to profit. If you could, you would borrow money at $r$ and lend it to the stock broker or exchange to collect the interest ...


4

Given one satisfies margin requirements anyone can short exchange traded options as long as local regulators permit (American retail investors at present are not permitted, for example, to trade futures options . As long as there is a market and one finds a willing counterpart nothing speaks against shorting options contracts. Some brokers might require a ...


4

A "Valuation Short" is a short idea based solely on valuation (fundamentals). This is presumably a "bad" idea and one of the quickest ways of loosing all your money. A "Structural Short" is said of shorting a company with a mature business model in decline, or shorting a stock that is becoming obsolete or significantly less competitive due to some major ...


3

'Inst. Owned' almost surely means "Institutionally Owned". With respect to the 103% ownership reported: Discrepancies caused by varying time lags in reporting ownership may skew the results Second, and perhaps most likely, is due to short selling. I might own 100 shares, lend them to Bill, and Bill might sell (short) the stock to Nancy. In this case both ...


3

I think this paper (which I skimmed once a long time ago and no longer have access to) may provide some insight: Cohen, Lauren, Karl B. Diether, and Christopher J. Malloy. "Shorting Demand and Predictability of Returns." Journal of Investment Management 7, no. 1 (2009): 36-52. It seems to consider stock loan fees which may be a proxy for "hard to borrow".


2

In 2008, the SEC instituted an exemption for market makers to allow them to sell short for the purposes of bona fide activities related to market making in options. However, "for new positions, a market maker may not sell short if the market maker knows a customer or counterparty is increasing an economic net short position".


2

I am also interested in the answer to this question, and would like to expand a little bit on it as well. First of all, let me add some value in terms of a partial answer: There are restrictions on when short selling is allowed. According to the SEC, and the "Alternative Uptick Rule" short selling is not allowed on "a stock that has dropped more than 10 ...


2

It depends on the derivatives exchange but e.g. Eurex exchange can also be used by retail investors as long as they are qualified (concerning their max. risk level) and their bank offers access to it (some at least do that).


2

What you're trying to do is express all your positions in terms of a risk currency. Then you can track your PnL in only one currency. You need to express all this in an Excel spread sheet and include some rates, a bit like the screenshot here.


2

Of course you can sell options and you can certainly sell options on most major indices. Thinkorswim (TDAmeritrade) offers and excellent platform. Moreover, one can short options without "full" account privileges provided a defined risk trade is entered (such as an iron condor or call spread)


2

Are there any regulations baring shorting these 'shadily marketed stocks' ? In the markets I'm most familiar with, Canadian, the answer is no. To be honest the biggest hurdle you'll come across is how do you short penny stocks that are being pumped and dumped? 1) There will often be no options on these so you can't use that avenue 2) Where will you get ...


1

Surely you have to keep $150 in your account against the short sale, all of which you lose on the close out.


1

Negative y means you're short the stock. This may have costs, just as being long the stock may have income from lending it to someone else. These costs can easily be incorporated as a growth adjustment to the stock. Since it costs more to borrow than you make from lending, the growth adjustment should depend on whether your overall position is long or ...


1

The first method gives the performance when rebalancing the position every day so you have a constant dollar exposure, the second is the result of shorting USD 1 and then keeping the position open, i.e. a short-and-hold return. They can be quite different in the long run and if there is high volatility. I recommend the short-and-hold with, possibly, ...


1

You assume that you receive the 6% interest rate on the receivings of the short sale (2474.55) and you assume that you will receive the 4% interest rate on the haircut (2474.55). This is not stated in the question and the only thing you should calculate based on the information in the question is the loss from not being able to receive the 6% interest on the ...


1

If you are short you need to use log((entryprice-fees)/exitprice). It is the same logic as in log long return case. You just need to change your entryprice and exitprice inputs. In this case, entryprice is the selling operation and exitprice will be the buying operation (just the opposite).


1

If you assume that IV of different expiration options is equal, then it mathematically follows that you are correct. Weeklies would give you the maximum theta decay. That is the theoretical answer. In practice, you may not have weeklies on every stock or index and you might have them but they trade too thinly. Wide bid/ask spreads etc. Also sometimes there ...


1

A currency quote (EURUSD 1.1, for example) put into an equation with units is 1 EUR / 1 USD = 1.1 or 1 EUR = 1.1 USD. Units or volume of a currency pair is expressed in terms of the base currency (EUR in the example), which means bids are buying and asks are selling the base currency. I glanced a few examples and it looks like you're right, but here's one ...


1

For spot EURJPY with a USD risk currency, the EUR is expressed in USD using the EURUSD spot rate, say 1.1145 so your 100 USD means you can short 100 / 1.1145 = 89.7 EUR If you wanted to express the risk currency then you use the equivalent rate usually through the USD. In this case you would be buying EUR with your USD to then short EURJPY. So if you're ...


1

You should make your borrow cost sufficient to dissuade unlimited short selling. In practice, each short would require you to borrow shares from your broker. This is usually handled when computing transaction cost. You should account for this in your trading algorithm or in the factor model itself. A simple method would make shorts some N% more expensive ...


1

Reach out to your prime broker and ask them for a history of borrows and rebates. Another realistic source of borrow rates can be imputed from the options data (though, then you would be restricted to the optionable stock universe).


1

I'm not an expert on this topic by any means, but my impression is: Generally brokers will not charge for locates unless you start asking for a lot more than you end up using. Locates are good for one day only. I would imagine the brokers themselves are charged some small fee for the locate, but for the customer this fee is just part of the commission ...


1

Please be aware when you back out implied interest rate for stocks with uncertain dividend payout.



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