Explaining What Has Been Going On In the Market

[Toddsterpatriot]

1) How can the short percentage be 139%?

1) How can the short percentage be 139%?

1000 shares outstanding. Melvin Capital borrows 700 shares and sells them.

Citron Research borrows 690 shares and sells them.

Long stock holders now hold 2390 shares, Melvin is short 700, Citron is short 690.

If there are only 1,000 shares outstanding, how can long stock holders end up with 2,390?

If Melvin borrows 700 of the only 1,000 outstanding shares, there are only 300 left to borrow; how does Citron then borrow 690? If I hold a share, can I loan it out more than once, creating new shares from thin air?

If Melvin borrows 700 of the only 1,000 outstanding shares, there are only 300 left to borrow;

When Melvin sold them, the new buyers now have 700.

If I hold a share, can I loan it out more than once,

Nope.

 

[Toro]

1) How can the short percentage be 139%?

1) How can the short percentage be 139%?

1000 shares outstanding. Melvin Capital borrows 700 shares and sells them.

Citron Research borrows 690 shares and sells them.

Long stock holders now hold 2390 shares, Melvin is short 700, Citron is short 690.

If there are only 1,000 shares outstanding, how can long stock holders end up with 2,390?

If Melvin borrows 700 of the only 1,000 outstanding shares, there are only 300 left to borrow; how does Citron then borrow 690? If I hold a share, can I loan it out more than once, creating new shares from thin air?

If Melvin borrows 700 of the only 1,000 outstanding shares, there are only 300 left to borrow;

When Melvin sold them, the new buyers now have 700.

If I hold a share, can I loan it out more than once,

Nope.

Toddsterpatriot
Pavel Svinchnik

If Toddsterpatriot Asset Management owns 1,000 shares, and TAM lends 700 to Melvin, Melvin then shorts those 700 which are purchased by Pavel Capital Management. PCM, not knowing he purchased the shares in a short sale, then lends 690 shares to Citron, who then sells them short.

So the calculation is (700+690) shares sold short / 1,000 shares outstanding. So 1390/1000=139%.

I believe this is called "re-hypothecation."

Yes, a Stock Can Have Short Interest Over 100% -- Here's How | The Motley Fool

We're all learning a lot about the mechanics of selling stocks short.

www.fool.com