In four years of actively shorting individual equities, I have never had something like this happen to me.
Tradestation called away my DLTR short. Or, to be more specific, they called away 3/4 of my position, booking me an egregious loss. My position, being 1/6 of my overall equity, wasn’t tiny, but it was by no means huge, as in thousands of shares. I was very surprised to find that a brokerage as large as Tradestation wasn’t able to handle this a little more professionally. No phone call, no email warning, no nothing. I just came home to “realized losses.”
Trying to turn a negative into a positive, I quizzed their trading desk dude about the recent frequency of them having to call away borrowed shares to meet the SEC’s rules. He said he has seen it happen more in the past three months than over the entire past year.
Hopefully this is an anomaly, but it really makes me wonder if this is happening to other traders across different brokerages. It also makes me wonder if there is not a concerted effort to stick it to the shorts.
Be careful out there.
I was not allowed to short SRS all day, after being able to for the past 3 months. So it seems they are cracking down on something alright.
For a stock like DLTR with a sizeable, but not huge, number of shares outstanding, I’d have to say that the shares were simply no longer available to be borrowed.
But the reasons for this can vary from firm to firm. Some firms won’t look very hard outside of their own margin accounts to find stock to borrow. Some firms will let you place the trade and then try to borrow the stock; when they can’t find it then you get a forced buy-in on settlement date. Some firms that borrowed the stock on your behalf will subject you to a buy-in if the firm they borrowed from starts to raise their fees for borrowing stock. Some firms simply go to greater lengths than others to secure stock to short, even if it means incurring a loss.
I’d like to think that Tradestation would go to some length to find DLTR for you. Since they couldn’t locate any, we know for sure that not enough people hold it in house on margin. Beyond that, it’s hard to say, but without getting conspiracy minded, I’d have to say that it is indicative of the selling pressure in the market right now.
If we were to be conspiracy minded, perhaps the big Wall Street firms are not loaning the stock.
But overall, the amount of stock held on margin has dropped a lot since 2007, which makes it harder to short all but the largest cap stocks.
It sucks that you weren’t notified. They should have given you three days unless it was some kind of incredible emergency.
I also use Tradestation and have had my short positions in FRT and SLG called away at the open. It made me miss out on some profits.
Not only is it not uncommon… even major ETFs are being called back. Sorry you had to learn the hard way, Jeff
Thanks for that explanation Ozark. TS usually will tell me when something is hard to borrow, and I will have to force a locate. Not so with DLTR. The shares were readily available.
Basically, the trading desk dude said that they had shares located when I shorted it, but when they went to deliver, the shares were not there anymore. I was really really surprised that they did not make an effort to locate for me.
Mushroomz, did this just start happening recently?
all I can say is wow. Glad I’m not short any equities.
Thanks Jeff. No harm done, really. Loss was smaller than my loss had I been stopped out. Just another reason to always use sensible position sizing.
How can they call your shares away and not refund you the difference?
i had ScotTrade call me several times end of 2008 to tell me that shares are no longer available and i will have to cover by 1 p.m. (central) next day. Once it was for IWN (the russel 2000 value ETF) which was trading at over 5 million shares a day at the time.
The last time this happened I talked to the Manager and I explained that I have accounts at TradeStation and Ameritrade and I would be happy to take my six figure account elsewhere. never happened since.
It happened about 3 weeks ago, and I haven’t been shorting financial related stocks since then in fear of what happened to you. I have only shorted XOM since then.
Zen, they weren’t my shares. That’s the gamble. If they would have called them away when I had a profit, I certainly wouldn’t want to pay TS back the profits.
Born2Code, one time at Scottrade, I was short the basic materials ETF. I had to call them to locate it. They were kind enough to tell me that that particular ETF was getting called back an awful lot. I shorted it anyway, covered sometime later with no problems. This was early 2008.
I’ve heard from a friend that he is having fewer problems with this at IB.
yes. they should stick it very hard into the shorties.
read your margin agreement.
sucks to be you when a short gets called away.
fuck, I’ve had problems finding borrows, at least you found one (even though they took it away)
Although I don’t think you’ll have trouble shorting a big name like XOM or GE, this is one example of why I have been using puts lately.
I had some regional bank shorts called away a few months ago on Tradestation.
Short Tradestation …see if they call those away.
but yeah, that really sux, especially for a system-trader. “# days to cover”, never thought that would be enforced.
When you sign your margin account agreement, you never expect the “fine print” to actually come true.
ScottTrade – no RKH shares available to borrow (short) this a.m.
Get a real broker. TradeStation? Come on!!!!
Move your account to IB or Schwab or anyone else except TS.
Geez….