Home » Accounting » Florida Professors Experimented With A Little Naked Short Selling

Florida Professors Experimented With A Little Naked Short Selling

Matt Levine, Bloomberg,  Florida Professors Experimented With A Little Naked Short Selling, here. It was the Engineering guy’s idea.

Or if you don’t like all the stuff about options, think of it this way:

  • A hard-to-borrow stock can be loaned out to short sellers for, I don’t know, 20 percent a year.

  • If you own the stock you can make 20 percent a year just lending it out (but you have price risk).

  • If you’re short the stock you have to pay 20 percent a year to borrow it (and you have price risk).

  • If you’re long the stock in one account and short the stock in another, you have no price risk, can get paid 20 percent for lending, and pay 20 percent to borrow, leaving you with a nothing.

  • But if you’re long the stock in one account and naked short in another, you have no price risk, get paid 20 percent for lending, pay nothing to borrow (because you’re just not borrowing), and are left with nothing but a free 20 percent return.

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