Lyft Inc (LYFT) is up 2.5% in late-day trading as the stock is inching back towards its IPO price of $72/share. One of the reasons for this upsurge in stock price is the inception of option trading in the name. Options trading has been decidedly bullish with call volume outpacing put volume.
While option traders are placing their bets on the pass line, looking for LYFTâ€™s stock price to rise, we are still seeing active short selling in the name. LYFT short interest is $937 million, 13.38 million shares shorted; 41.18% of its float and we are seeing over 500 thousand of net short selling in the stock so far today. Not enough to move the stockâ€™s price with 7.3 million total shares traded today, but enough to provide a little friction against a stronger rebound day.
LYFTâ€™s stock borrow rates have had a higher trajectory than a Space-X rocket over its first several days of trading, but are now returning back to terra firma with stock borrow rates on new shorts in the 10% to 20% fee range. We had seen rates top the 100% fee threshold earlier in the week, but have since seen the process of supply & demand float rates down to more reasonable levels. More lendable supply has hit the stock lending market which is more than offsetting the continued short selling demand.
As lenders become more eager and desperate to push their lendable LYFT supply onto the street and generate revenues for their underlying long beneficial owners, stock borrow rates have decreased. Lenders have now reversed course and instead of charging severe fees to borrow LYFT stock that was in high demand with limited supply they are now charging fairer fees for a stock that is still in short sellers cross-hairs, but whose lendable supply continues to trend upwards.
Now that the initial settlement dust has settled, and long lendable LYFT shares have been delivered and reconciled in brokerage and lending programs we see that a surprisingly large percentage of LYFTâ€™s float is lendable. Of the 31.4 million shares of LYFT float, according to Bloomberg, approximately 60% is available to borrow. This percentage is higher than expected since LYFT should have had a higher level of retail long shareholders who, for the most part, are not in margined nor in stock lending accounts. With tentatively 7 million more shares of LYFT available to borrow we should see short financing rates steadily decreasing over the near term unless short sale demand eats up the vast majority of those 7 million shares.
Stock loan supply for â€śhot stocksâ€ť is both a malleable and transitory animal. On the technical side, buys, sells and margin requirements constantly change the number of shares that are available to borrow in trading and custodial accounts. In addition to actual transactions affecting stock loan availability, brokers and lenders can arbitrarily â€śadjustâ€ť the amounts of lendable shares they determine as lendable in order to create internal supply buffers, holdbacks for future internal needs or supply haircutting in order to conceal actual supply levels. Much like a car dealer trying to get you close the deal by telling you that the red sportscar on the dealer floor is the last one in their inventory even though there are ten in his back lot.
LYFT short sellers still have a lot of â€śdry powderâ€ť at their disposal and it is getting cheaper to use. While LYFT shares are experiencing a stock price rebound today, the potential for a significant amount of additional short selling exists. As we have seen in most IPOâ€™s, shares shorted usually takes several weeks to plateau as short sellers leg into their positions over time so we should see over $1 billion in LYFT short interest very soon and if the short selling trend continues, closer to $1.2 billion within a few weeks.
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Managing Director Predictive Analytics, S3 Partners, LLC
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