When more lendable shares became available than were expected, the cost to borrow Facebook shares for one year, or to “short” shares, fell from 40 percent of the stock’s value Tuesday afternoon to 6 percent Wednesday, according to Astec Analytics, as reported by The Wall Street Journal’s MarketBeat blog.
Tuesday, the annualized rate, which was 28 percent at the trading day’s close, was too steep to short, due to high demand, MarketBeat reported.
According to Astec Analytics, some 36 million shares had been borrowed by late Wednesday, up from 26 million at Tuesday’s close. The decline in the cost of borrowing shares likely led to an increase from the 103 million lendable shares available late Tuesday.
When traders short stock, they borrow shares hoping that the share price will dip so that they can sell and buy back the stock they don’t own and pocket the difference. For example, a trader can short 10 shares costing $50 each, and then sell them. When the price drops to $40, they can buy back the borrowed shares and return them to the original owner, while making a profit of $100.
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