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Securities Lending

SLB Update: Largest Short Value per Sector


The following table shows the securities with the largest short value per sector on 10/13/2017.
 


 

The analysis in this article is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Securities Lending

Can I Short an IPO?


Qudian Inc. (QD) provides online credit products. The firm operates in China, offering funds in digital form.  QD held an IPO on 10/17 at $24 per share and opened at $34.35 on the NYSE the next day.  Continuing the trend of tech IPO volatility, shares dropped to a $28-handle today, recovering to a $31-handle by the afternoon. 

This caught our attention as becoming a popular short.  When a stock is not available to short, trades are “rejected” due to Regulation SHO’s locate requirements.  The desk monitors rejects and tries to locate shares for availability in real-time,.  Generally, only settled long positions (T+2) are eligible to be lent because lending settles same-day (T+0).  However, lending desks can provide a locate and therefore short availability via segregation projections two days out.  Practically, that means the desk here at IB may provide a limited locate for an IPO only 1 day after it starts trading in the secondary market (IPO T+1), versus the customary 2 days.  This is a tremendous value-add in a market segment which has bucked the overall low volatility environment. 

Coming back to Qudian, we made shares available this morning which were promptly sold through.  Demand is exceeding the paltry supply.  Technology IPOs are popular shorts, garnering above-average borrow fees long after listing.  Names like Twilio (TWLO), Snap (SNAP), Roku (ROKU) and Switch (SWCH) are recent examples.  Qudian is another one we will be watching.

 


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Options

GE: Options Market Sees More Trouble Ahead


Goldman’s put recommendation is yet another sign of how institutional investors have turned against the company.
 
 
The options market is treating General Electric’s dividend cut as a fait accompli.

GE’s (ticker: GE) options are priced as if the 96-cents annual dividend will be reduced to 71 cents. Stock investors, however, are speculating that the dividend will be lowered even more sharply to 60 cents a share.

The discrepancy between GE’s options pricing, and some analyst commentary, illuminates the controversy surrounding GE’s third-quarter earnings that will be released early Friday. The company is considered to be in such bad shape that investors are braced for the new chief executive to pretty much say or do anything to show investors that he understands the enormity of GE’s problems.

In anticipation, many investors have bought bearish puts, which increase in value when stock prices decline, to hedge or short GE stock. JPMorgan Chase (JPM) has been an early, persistent GE bear, and now Goldman Sachs Group (GS) is advising clients to prepare for the stock to trade lower on earnings, and even after a Nov. 13 analyst-day meeting. The company is expected to reduce financial guidance for 2017, and perhaps beyond.

With the stock at $23.19, Goldman’s derivatives strategists advised clients to buy GE’s November $23 put for 66 cents. The expiration covers earnings, and the November meeting.

If the stock is at $20, for example, the puts are worth $3.

Since late May, we have repeatedly advised investors to wager against GE. The trades have proved profitable, and some are still active.

We relay Goldman’s put recommendation as yet another sign of how institutional investors have turned against GE. So far this year, the stock is down about 27%, while the Standard & Poor’s 500 index has gained about 14%.

The stock’s bad performance highlights a paradoxical risk factor. GE remains one of the world’s most widely held stocks. Many people have invested their retirement savings in GE because they thought the dividend was sacrosanct, and the business portfolio was among the world’s best-run. They have been proved wrong. So far, those investors have largely maintained their stock. Some have probably even bought more shares as the price has declined. All of this raises another risk factor that is not widely discussed even though it could harm the stock.

If GE’s management says anything to panic long-term individual investors in the next few weeks, those steady hands may sell their stock to cut their losses. If that happens, GE’s stock could get kicked even lower.

 

Steven M. Sears is a Senior Editor and Columnist with Barron's. He is the author of "The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails." Mr. Sears previously reported for Dow Jones Newswires and The Wall Street Journal. He has reported upon most major modern financial events, including the Asian Contagion, the bursting of the Internet Bubble, the Credit Crisis, and Europe's sovereign debt crisis. He also was part of exchange executive teams that modernized the U.S. options market, and introduced electronic trading. Interact with him on Twitter @sm_sears.

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This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 


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Securities Lending

SLB Update: Hardest to Borrow per Sector


The following table shows the hardest to borrow securities per sector during the week of 10/10/17 - 10/16/17.
 

 

The analysis in this article is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Options

AA: Volatility Skew Signals Very Bearish Sentiment


AA: 46.94-0.81 (-1.7%) Alcoa

 

The 30-day implied volatility skew is trending today towards a more bearish outlook. 25-Delta Put options are trading at 33.0 vol, or +1.9 higher than the 25-Delta call options. Over the last year, the average of this spread has been +0.4, so today's move is suggesting that option traders are growing more concerned about a move to the downside. View Volatility Skew.  The implied volatility skew shows the market's bias for pricing in volatility risk to the option premium of downside puts and upside calls. If the implied volatility for downside puts is increasing relative to upside calls, then that suggests the market is pricing in a larger fear to a downside move.

 

MarketChameleon was developed to provide users a fully-integrated suite of powerful analytical tools and downloadable data. https://marketchameleon.com/Premium

 

This article is from MarketChameleon.com and is being posted with MarketChameleon.com's permission. The views expressed in this article are solely those of the author and/or MarketChameleon.com and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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