Borrow cost for short sellers rises
15 March 2019 London
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Borrow costs for short sellers are rising as shares rally and lendable shares are in limited supply, according to an IHS Markit analysis of Overstock.com.
This follows Overstock’s recent announcement that they will report a Q4 2018 earnings before markets open on 18 March.
In a commentary of ‘Overstock.com: Lendable shares in limited supply’, IHS Markit noted that new borrows are the most expensive on record and re-rates are driving up borrow costs for existing short positions.
Additionally, the share price is 75 percent below the all-time high observed on 5 January last year.
According to IHS Markit, the current short interest is at the highest level recorded in terms of shares (16.7 million), which equates to 68.7 percent of the free float.
It is also the fourth most expensive US equity to borrow with at least $25 million on loan, IHS Markit revealed.
IHS Markit noted: “The shares are trading 75 percent below the all-time high of $86.9 per share, however, the current share price $22 reflects a 70 percent rally from the 2018 low on 13 December.”
“Bears may have gotten the better of the bulls over the last year, however short positions have been put under pressure by the rise in borrow costs along with the rally in share price year-to-date.”
Overstock’s current short position is over 16 million shares for the first time on record, however, the peak percentage of float was over 80 percent, observed in 2006, IHS Markit cited.
IHS Markit also looked at borrow availability and found that the increase in shorting required a corresponding increase in the borrowing of shares in order to settle the short sales.
In IHS Markit’s commentary conclusion, it explained: “There’s been no shortage of pain for long holders over this past year, though currently, they are enjoying a share price rally along with increasing realised returns from lending their holdings.”
“While the future course of the share price and borrow fee is unknowable, there’s no indication that the borrow fees will decline in the short run. Typically, expensive to borrow equities underperform relative to stocks which are easy to borrow, however, in this instance, longs and shorts would likely agree that Overstock.com and its CEO are anything but typical.”
This follows Overstock’s recent announcement that they will report a Q4 2018 earnings before markets open on 18 March.
In a commentary of ‘Overstock.com: Lendable shares in limited supply’, IHS Markit noted that new borrows are the most expensive on record and re-rates are driving up borrow costs for existing short positions.
Additionally, the share price is 75 percent below the all-time high observed on 5 January last year.
According to IHS Markit, the current short interest is at the highest level recorded in terms of shares (16.7 million), which equates to 68.7 percent of the free float.
It is also the fourth most expensive US equity to borrow with at least $25 million on loan, IHS Markit revealed.
IHS Markit noted: “The shares are trading 75 percent below the all-time high of $86.9 per share, however, the current share price $22 reflects a 70 percent rally from the 2018 low on 13 December.”
“Bears may have gotten the better of the bulls over the last year, however short positions have been put under pressure by the rise in borrow costs along with the rally in share price year-to-date.”
Overstock’s current short position is over 16 million shares for the first time on record, however, the peak percentage of float was over 80 percent, observed in 2006, IHS Markit cited.
IHS Markit also looked at borrow availability and found that the increase in shorting required a corresponding increase in the borrowing of shares in order to settle the short sales.
In IHS Markit’s commentary conclusion, it explained: “There’s been no shortage of pain for long holders over this past year, though currently, they are enjoying a share price rally along with increasing realised returns from lending their holdings.”
“While the future course of the share price and borrow fee is unknowable, there’s no indication that the borrow fees will decline in the short run. Typically, expensive to borrow equities underperform relative to stocks which are easy to borrow, however, in this instance, longs and shorts would likely agree that Overstock.com and its CEO are anything but typical.”
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