Beyond Meat (BYND US) continues to lap the field as the most expensive actively shorted stock with a stock borrow fee of 146.10%, which is down over 14% from last week. Shares of GameStop Corp (GME) had the largest increase in borrow fees, increasing from 8.55% to 32.60% fee. On the downside PagerDuty (PD), Zoom Video Communications (ZM), RealReal Inc (REAL) and BeyondMeat (BYND) all saw easing stock borrow rates over the last week.
Stock Borrow Fee: 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. Beyond Meat (BYND) is by far the short that is costing short sellers the most cash on a daily basis and is the only domestic stock with over $1 million in daily stock borrow fees. In aggregate, domestic short sellers were paying $20.8 million in daily stock borrow financing expenses last week, equating to $7.49 billion in financing expenses per year.
Daily Financing Costs: 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.
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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