Note on 5: Before you try this, make sure you understand what you’re getting into and the risks involved. (There are rarely completely riskless arbitrage opportunities, and this isn’t one of them.)
Stock borrowing cost might be the biggest open secret that few investors know about. Before buying or shorting any individual stock, check its borrowing cost and “utilization ratio” (how much available stock to borrow have already been borrowed for short selling) using Interactive Broker’s Trader Workstation. If borrowing cost is high and utilization ratio isn’t very low (not sure why that happens sometimes) that means some people are willing to pay a high cost per day to hold a short position in the stock, which means it very likely will tank in the near future. But if utilization ratio is very high, near 100%, that means no new short selling can take place so the stock can easily zoom up more due to lack of short selling pressure and potential for short squeeze, before finally tanking.
If you do decide you want to bet against the short sellers and buy the stock anyway, at least hold the position at a broker that offers a Fully Paid Lending Program, so you can capture part of the borrowing cost that short sellers pay.
Note on 5: Before you try this, make sure you understand what you’re getting into and the risks involved. (There are rarely completely riskless arbitrage opportunities, and this isn’t one of them.)
Stock borrowing cost might be the biggest open secret that few investors know about. Before buying or shorting any individual stock, check its borrowing cost and “utilization ratio” (how much available stock to borrow have already been borrowed for short selling) using Interactive Broker’s Trader Workstation. If borrowing cost is high and utilization ratio isn’t very low (not sure why that happens sometimes) that means some people are willing to pay a high cost per day to hold a short position in the stock, which means it very likely will tank in the near future. But if utilization ratio is very high, near 100%, that means no new short selling can take place so the stock can easily zoom up more due to lack of short selling pressure and potential for short squeeze, before finally tanking.
If you do decide you want to bet against the short sellers and buy the stock anyway, at least hold the position at a broker that offers a Fully Paid Lending Program, so you can capture part of the borrowing cost that short sellers pay.