Twitter Inc (NYSE:TWTR) shares might look like a perfect stock to play a short strategy at this point of time following the downgrades from various analysts. However, borrowing the stock to initiate a short position is becoming difficult nowadays, says a report from Foxbusiness by Adam Samson and Julie VerHage.
Twitter shares difficult to borrow
Investors play a short strategy (they borrow the share and sell it and buy back it later at a lower price), when they feel that the stock will dip from its current valuation. However, the most important part of the trade is borrowing through an investment bank, but recently it has become very difficult to borrow Twitter Inc (NYSE:TWTR) shares.
“We have not been able to get any additional borrowing to that we already have secured, so we have to stop letting any of our clients take new short positions as we don’t really let them do ‘naked shorting’,” said a senior official at a large brokerage to Foxbusiness.
Regulators have put a ban on naked short selling, where the traders do not have actual ownership of stock, but they short it. According to the official, naked short selling is practiced in case of smaller stocks rather than larger ones. He added that Twitter Inc (NYSE:TWTR) has recently started trading on the stock exchange, which implies that not many people would lend the shares and would prefer to hold them.
What experts feel
According to Santosh Rao, who is the head of research in Greencrest Capital, not many people want to part with Twitter stock, instead, they want to keep a hold position on the stock.
Timothy Smith, executive vice president at SunGard Astec Analytics, said that since the last month Twitter Inc (NYSE:TWTR) shares have become more difficult to borrow. Astec Analytics stated that average fee to borrow shares was 2.43% on an annual basis on January 3 while the rebate was -4.87% on the same basis. A negative rebate indicates the amount paid by investors to the dealers for borrowing the shares. Rebate was at its top level since November 14, which is one week after Twitter started to trade in public markets, but at present the fee is at its highest since November 15.