The āHottestā items usually come with high costs, whether it be the Toro at Nobu, a bottle of Chateau Lafite Rothschild or NY Ranger seats on the blue line at MSG, consumers have to pay for āvalue.ā Short sellers also have to dig deep into their pockets to short the āhottestā stocks. Beyond Meat (BYND US) tops the list of the stocks with the highest stock borrow fees at 112.68%, with its rates trending even higher today.
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. The daily cost to borrow stock is the $ Notional of the short position * Stock Borrow Fee / 360 days. 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 (minimum short interest $50 mm):
Besides their cost, the āHottestā places are also the most crowded or most difficult to get into, Studio 54 back in the day; Hamilton on Broadway or that Friday night table for four at Raoās. Dillardās Inc (DDS US) Short Interest as a % of Float topped 100% this week and sits atop the league tables. Most of these stocks are long-time shorts, but due to their high SI % of Float there is a relatively low ceiling as to how large the overall short can become due to lack of stock loan supply.
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.
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, an investor can see up-to-date short interest, stock borrow fees 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.