An example here, where everyone lost out https://ftalphaville.ft.com/2018/10/31/1540962002000/The-day...
If you want a current indicator you have to pay for it from companies like Markit that poll hedge funds. The idea being that if you want to know the number you pay by including your own data that they can then show to other funds in aggregate.
For the borrow rate you ask your prime brokerage(like a bank but for holding equities/derivatives/etc). They'll go find you shares and figure out what rate to charge you, while adding their own rate on top.
1) Total Shares of 273Million this is what finviz is using. This includes locked up shares that can't trade right now
2) the Currently tradable float, this is 32 Million and what I, Bloomberg, Markit, and any non budget site will use as these are the only shares that currently matter.
LifeOfPi mentioned the short float to = 7%. Chollida1 mentioned the 7% figure was using 273mil shares as a base.
So wouldn't the total shorted shares equal 19mil? (19mil = 273mil X 7%). However, Chollidal mentioned in the first post that 27mil shares are shorted. Trying to figure out how to bridge the gap between 19mil and 27mil...
PS. Not trying to nit-pick. The comments are very useful. Maybe I'm missing something....
In regards to borrow rates, there are some sources that are fairly accurate, but usually only to prime brokers themselves. There is no public exchange.
Interactive Brokers is the only retail broker that I know of that is fairly transparent and fair in terms of borrow rates.
As pointed out above, if there is then a subsequent increase in price, and this can be because short sellers are forced to buy back their short for any reason (short squeeze), prices can very quickly increase out of control. The best case of this was the Porsche-Volkswagon "infinity squeeze" - when mathematically speaking, absent intervention, the price would have gone to infinity.
https://moxreports.com/vw-infinity-squeeze/
Good times.
[0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...
They might have edged their position by issuing an actual short, I'm only saying they don't necessarily have to.
From what I understand they make their money off of a deal like this by either taking a cut or fees.
However, your commentary around quick upward price action is still valid.
This is technically true, but far away from what actually happens. What normally happens is that when borrow gets pulled the prime will notify the firm that they have to close the position for T+2 settlement.
There is a 3pm buy in window but you are correct that its not often that the prime is forced to do it because they make it clear to the firm that at 3pm they will send a market order for the required amount, this will almost always result in the firm buying back the position before this comes to pass.
Occasionally the prime will find other borrow but often that borrow has multiple issues that make it unsuited for holding a short position for more than a day or two.
1) unstable and could get pulled at any moment.
2) rates are much higher than what the firm was currently paying
So theoretically you are correct but practically speaking not so much:) The firm will usually just close out a position at this point unless they have a firm conviction that they can make a profit at the increased borrow rate and ride out the moentary pop.
And with borrow rates that can did approach 60% for lyft you are betting that Lyft will go down more than 60% inside of one year.
Possible but not very likely, you can be directional correct but still lose due to your borrow fees.
Retail doesn't help much for larger firms with borrow as the market isn't near as large as the institutional market. Though maybe you just are used to trading in smaller share quantities than I am:)
Off-topic, but: thanks for teaching me a new word! I found that the correct spelling though is "rehypothecated". According to Wiktionary:
> (finance) To pledge hypothecated client-owned securities in a margin account to secure a bank loan; usually used for mortgages.
However, while it may be true that in the long term lyft will loose value, something weird can happen in the short term:
Shorting requires borrowing shares. You pay a fee, borrow the share. If it looses value you make money. But if it gains value, and you are asked to return those shares back, you can loose a lot of money. Also, the act of asking for those shares back could raise the value, creating a negative feedback look. Disastrous for the short seller.
Why might we see lots of shorts being asked to return the shares back? Due to the large amount of shorting and the bank wanting those shares for other purposes.
Why might we see lots of shorts being asked to return the shares back? Due to the large amount of shorting and the bank wanting those shares for other purposes.
That's very interesting, are there mechanisms that prevent large shareholders like hedgefunds or banks from loaning out shares and then purposely pulling them back to create the negative feedback loop you mentioned? It sounds like a situation open to abuse.
Agreed.
The biggest disconnect here is simply not understanding how the short mechanism works. It is not simply a bet against a stock and call it good. There's a chain of events that have to occur, culminating in someone's previously-held security of said stock.
Levine: "Here’s a pretty good statistic about Lyft Inc.:
Short interest in the No. 2 ride-hailing company has risen to 27 million shares, according to financial analytics firm S3 Partners, while Lyft’s public float is about 33 million shares in total.
Lyft has 285.9 million shares of stock outstanding (including regular Class A and high-vote Class B stock), but a big chunk of those are held by insiders and early investors who have agreed not to sell them for six months. Lyft only sold 32.5 million shares when it went public at the end of March. But now there are, apparently, some 60 million shares publicly available: 32.5 million from Lyft, and 27 million from short sellers. Short sellers have basically doubled the supply of Lyft stock. If you own a share of Lyft, there’s about even odds that you bought it from (someone who bought it from (etc.)) the company as part of its fundraising efforts, or from a short seller as part of her bet against Lyft.
Or, not necessarily her bet against Lyft. One thing that seems to be happening with Lyft is that some number of its pre-IPO shareholders have somehow managed to hedge their exposure, despite the lockups. The banks that are helping them hedge have shorted the stock. This means that some of the shares that are now publicly available are sort of phantom emanations of shares that aren’t yet publicly available; they are locked-up shares that have nonetheless been sold short. They are not new shares created by short selling, but shares that will be available in the future and that have been moved forward in time by short selling.
People always believe that there is some natural limit on the number of short sales, by the way, but there really isn’t. If there are 32.5 million free-floating shares of Lyft, then some enterprising short seller can borrow all of them and sell them to other people. But now those other people own 32.5 million shares of Lyft, and they can further lend them to another (or the same) short seller, who can sell them to yet other people, who will now own shares and be able to lend them, etc. This tends to peter out—some holders won’t lend the stock—but there is no physical requirement that it will. If enough people really wanted to short Lyft stock, and enough people really wanted to buy it, and also enough people wanted to lend it, then there could be 270 million short shares instead of 27 million. The stock market is not just a mechanism for financing companies and allocating their ownership; it is also a mechanism for betting on them. The financing and ownership things are limited by the actual size of the company, but the bets are not; they are limited only by the demand for betting."[0]
[0]https://www.bloomberg.com/opinion/articles/2019-05-10/the-un...
This is wrong. Not sure where you came up with this. I think you are confused because Matt talks about the shorts creating more shares..
There aren't really 60M shares, read the last paragraph you quoted to figure out why.
It seems to me as a layperson that they have both funded their growth by discounting rides at an unsustainable rate. The sustainable price seems to be pretty much what taxis charge. (No complaint here. I believe in paying my, ah, fare share. I’d be quite willing to pay that rate for Uber/Lyft because I don’t like taxis.)
Is that analysis unsound? What will keep them operating when they run out of investor money?
- Cut R&D cost
- Grow in scale
- Force people out of buying their own cars by providing rides
- Carpool at work programs
- Lyft Shared rides - which taxies could not exploit efficiently, makes it a win win for riders and drivers
- Imagining auto-driving cars in the near future, that can change economics
- Cities that were generally transit heavy, can exploit this alternative, since car usage was low to go to work
- Their partnering with Rideshare programs at work, leads to a very cheap commute on demand, which cuts into the vanpool market - with flexible timings
- Even with same prices as taxis - it's put so many people and cars to work that were sitting in the driveway. I see some form of Government subsidy here too as an option ( since good for the environment, and the economy in general)
- Markets to expand in - Commercial Freight( unused capacity transportation) - basically structuring and leveling the playing field wrt rates, policies, contracts and availability via a digital centralized experience
- Food delivery
- Many more sure I'm missing
The way the greenshoe works is that, in the IPO, the underwriters sold 15 percent more stock than Lyft did. That is, Lyft sold the underwriters 32.5 million shares of stock in the IPO, but the underwriters placed 37.4 million shares with investors. (The underwriters sold the shares for $72, but bought them from Lyft at $70.02; the $1.98 difference is their fee for the underwriting.) The underwriters were short the extra 4.9 million shares. If the stock went up in the days after the IPO, stabilization would be unnecessary, and JPMorgan would cover that short position by buying the extra shares, from Lyft, at the IPO price. (This is called the “overallotment option,” or “greenshoe.”) If the stock went down, though, or threatened to go down, JPMorgan would cover the short position by buying back the extra shares in the market, which would have the effect of stabilizing the price, because JPMorgan would be a big buyer.[0]
[0] https://www.bloomberg.com/opinion/articles/2019-05-07/lyft-s...
> A greenshoe option is an over-allotment option. In the context of an initial public offering (IPO), it is a provision in an underwriting agreement that grants the underwriter the right to sell investors more shares than initially planned by the issuer if the demand for a security issue proves higher than expected.
This is a company that has maybe 33 million shares outstanding now with about 27 million of them being sold short. So they have an enormous short bet against them. We see borrow rates as high as 30% for borrowing shares to short with no real stable borrow available.
However, due to the enormous amount of those short shares being rehypothicated(relent), Lyft is vulnerable to a quick upwards price run if those long sellers ask for their shares back. That would cause a run on those shares as they may be lent out multiple times by the same bank.
So whenever someone ask why you don't short an individual stock its always valid to answer that you believe you are right in the long term but the short term could wipe you out if you shorted.
As a quick edit, uber is now indicating its opening at a range of 45.50-46.50, given that the IPO price was $45, it looks like the underwriters will have some work to do and will almost certainly exercise their green shoe option.
So maybe wallstreet is wising up to money losing companies or Uber learned from Lyft that a slow and steady approach to their share price would be better long term for them?