There are two stocks with rates over 100% fee in the U.S. domestic market. McDermott Intl (MCD) rates have been climbing since the firm reported a $1.9 billion quarterly loss in November and its CFO, Stuart Pence, resigned. Clovis Oncology (CLVS) stock borrow rates spiked in mid-November along with its stock price as M&A activity in the biotech sector shows signs of picking up. Both stocks have minimal stock borrow availability, forcing rates higher.
Stock Borrow Fee:Â The annualized stock borrow fee charged by brokers to short sellers. Short sellers pay a fee to borrow stock to cover the settlement of their short sales. Stock loan is a supply\demand market; if supply gets tight or demand spikes borrow fees are bound to go up.
The U.S. traded stocks with the most expensive stock borrow fees (min short int $50 mm):
High stock borrow fees have a negative impact to Alpha, slowly and insidiously eating away at accumulated profits and like a strong armed outfielder, turning triples and doubles into singles.
Canopy Growth (CGC) and Nio Inc (NIO) shorts are paying over $1 million/day in stock borrow fees as short sellers continue to build their positions in spite of their expensive short financing costs. Cannabis stocks continue to be expensive shorts, with four stocks in the top 25 highest stock borrow costs.
Daily Financing Costs:Â The daily cost to borrow stock is the $ Notional of the short position * Stock Borrow Fee / 360 days. The amount of total daily financing costs depends on the size of the short, stock price and stock borrow fee.
The U.S. traded stocks with the largest daily stock borrow expense (minimum short interest $50 mm):
Besides their cost, some shorts are very crowded and difficult to get into. Most of these stocks are long-time shorts, but due to their high SI % of Float there is a very small chance that there will any significant amount of additional short selling in these stocks due to lack of stock loan supply. Any compelling downward price movement in these stocks will be due to long selling and not short selling. Peloton Interactive (PTON) and Gamestop Corp (GME) continue to top the list with the highest short interest as a percentage of float. Gamestopâ€™s SI % of Float has been over 70% since early November and its short interest as percentage of float has not dipped below 60% since its second week of trading. Most of Gamestopâ€™s stock borrow availability has already been mostly taken down, but there is still an ample amount of Peloton stock to short. We expect Pelotonâ€™s stock borrow fees to increase as more stock borrow availability is used up, expect rate to top 10% fee and climb at a more aggressive pace over the next few weeks.
Short Interest as a % of Float: The total number of shares shorted divided by the companyâ€™s float. SI % of Float usually tops out at the 40% to 60% range due to lendability constraints.
The U.S. traded stocks with the highest Short Interest as a % of Float (minimum short interest $50 mm):
Short sellers must take into consideration the cost of the underlying stock borrow as well as the Short Interest as a % of Float when making their short investment decisions. High stock borrow costs can eat into expected Alpha making an attractive trade fall below investment thresholds. Or an unexpected increase in stock borrow rates can turn a home-run trade into a run of the mill single.
High daily financing costs hit a short sellerâ€™s bottom line directly, if a stockâ€™s price plateaus the trader will be seeing red financing numbers that are not being offset by daily mark-to-market profits. If these financing costs are not accounted for properly on a daily basis, what may look like a profitable trade may in actuality be a loser.
When sorting through short side candidates a quick look at SI % Float can determine whether a potential investment is early or late to the trade. If SI % Float is already high, the trade is already relatively crowded there may a sudden and dangerous stampede for the exits if the stock rallies. A low SI % Float may indicate that the investor is early to the game and is able to covertly build a position and sample most of the early Alpha exclusively.
Using our Black App or our Blacklight SaaS platform, a trader can see up-to-date short interest, stock borrow fees\cost and SI % Float, to get a leg up on the competition and get in or out of trades before the herd.
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Managing Director Predictive Analytics, S3 Partners, LLC
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The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (â€śS3 Partnersâ€ť) to be reliable and accurate.Â Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use.Â Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decisions.