[quote=flu]How do you short a freshly minted IPO stock? There’s not that much float and there are so many regulatory hurdles for shorting right after an IPO, that most retail speculators would not have access to those limited shares in a meaningful quantity. How did you folks that said your shorted right after Snap went public did you manage to pull it off? What brokerage firm did you use that were allowing you to short right after an IPO?
And I don’t think you pay 18% interest just from shorting unless you the short position blew up, the stock price went up past your short price AND you don’t have enough money in your account to cover the paper loss. That difference between what you shorted at , and the current market price (which is higher) is like a margin loan.. At least that’s how my broker works. I never had to pay margin interest when I was on the right side of a short. And even when a short position had a loss, so long as I had enough cash in the account to cover that unrealized loss, there was no margin interest charges too.[/quote]
In IPO the underwriters sell to general public. The shares owned by underwrite have 30 days restriction to lend out for shorting. But for other public buyers like mutual funds or retail investors, their shares can lend out for shorting. If too many people want to borrow shares, then it become a difficulty.
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To be able to short a stock, you usually need to borrow it from an institution such as your brokerage firm. For them to lend it to you, they need an inventory of this stock. Here’s where the difficulty can arise with IPOs and short selling. An IPO usually has a small amount of shares upon initial trading, which limits the amount of shares that can be borrowed for shorting purposes. On the day of the IPO, two main parties hold inventory of the stock: the underwriters, and institutional and retail investors.
As determined by the Securities and Exchange Commission, which is in charge of IPO regulation in the United States, the underwriters of the IPO are not allowed to lend out shares for short sale for 30 days. On the other hand, institutional and retail investors can lend out their shares to investors who want to short them.
However, only a limited amount of shares would probably be available on the market as the company would’ve just started trading publicly and the shares may not have been completely transferred. Furthermore, there might be a lack of willingness among investors to lend their shares out to be short sold.
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