I have individual and IRA accounts with a speculative position. I am wondering how do I keep my broker from lending my shares to shorts in both accounts? If I did want to make money lending those shares, how do I do it?
I looked into this a while ago. First, you need roughly $200,000 -500,000 in the stock to make money lending out those shares. If you don't have that sort of position, the brokerage will lend out and not tell you about it. If you have that position then you can negotiate with them and split the lending fee.
Secondly, here is what I have heard about keeping your brokerage from lending your shares. Remember that each share lend and sold creates additional supply of the stock (an additional seller, the short seller), while the demand remains the same (same number of buyers) so the stock is artificially kept down. In fact stocks that have high short interest for the most part underperform their non-shorted counterparts. This isn't always true- there are some periods in history where this isn't true, but it's the topic of a lot of financial papers and seems to be a logical, good rule of thumb.
This is what I have heard:
1) if the account is not a margin account, the shares will not be lent out.
2) if the account is a margin account, but the shares have some sort of sell order, including but not limited to the following: covered calls written against them, limit sell order, then they will not be lent out.
I don't know how much truth there is to the above two items. It might depend on the brokerage, I called mine a while ago and I do believe that I confirmed the 1st item, that if it's not a margin account the shares won't be lent out. Supposedly there's a clause in the margin agreement that lets them do that.
Feel free to dispute any of the above, i'm all ears.
mershaw, you are right, except my broker will lend amounts less than what you mentioned. That would include IRA shares and cash account shares. Right now the annualized rate is 12% for TSLA. Varies with supply and demand. I can sell shares at any time. The broker can needs signed docs for that to happen. Those shares are not covered by insurance in case the broker goes BK.
Can not lend shares in margin account as you stated. I suspect the broker lends those shares and makes a profit. Other share that I have like railroads, SPY, food, beverage, etc are not worth lending. Pay 0.5%/year at best.
Anyway, if there is a short squeeze it will happen regardless, if the company meets their target production and ekes a positive cash flow.