Beyond Meat (BYND US) no longer owns the highest stock borrow fee in the domestic market with its rate falling -42.75% to 4.55% fee in November and by -163.5% since its mid-October high. There are no āsuper-hotā stock borrows over 100% fee at the moment. Stock borrow costs in the Cannabis Sector continue to trend higher than the overall market with three Cannabis stocks in the top ten and four in the top twenty-five.
Stock Borrow Fee:Ā 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. With BYND no longer a +100% fee stock borrow there are no stocks with daily financing costs over $1 million/day. Cannabis stocks rank highly in the league tables again, with three of the top six highest daily borrow cost with Aurora Cannabis (ACB US) leading the pack and the only stock with over $500 thousand in daily borrow costs. In aggregate, domestic short sellers were paying $16.6 million in daily stock borrow financing expenses last week, equating to $5.99 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. Peloton Interactive (PTON US) tops the list this week with over 88% short interest % of Float. PTON SI % Float has been over 80% for three weeks as shares shorted have increased by 2.5 million shares, +8%, even though its stock price has risen +14% since October 24th.
Short Interest as a % of Float: The total number of shares shorted divided by the companyās 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 sellerās bottom line directly, if a stockās 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 (āS3 Partnersā) to be reliable and accurate.Ā 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.Ā 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.