Tex first consider the source. The "bunny" is bought and paid for by Byrne of OSTK. Nonthe less, annotated deconstruction of the post:
"Many of the workers do not understand where the money is being siphoned off. Many of the brokers and representatives don't even know about the stock lending programs offered by the brokers.
uh, I think most brokers understand short sales and borrow programs. What is his source for this claim
If all clients were knowledgeable about the lending programs, they would not borrow and would instead collect the interest on the stocks that are being lent out rather than allow the brokerages to collect margin interest from them and interest on the stocks that the brokers are lending out of their accounts.
Individual investors are really not equipped to participate in lending programs. Only institutional clients have the depth of position and infrastructure to participate.
It is possible for the brokers to be collecting 12% on the stocks that they are lending out and an additional 8 to 10% on the margin loan. The spread on the margin loan could be as much as 6%. It could be higher depending on how much the account is leveraged. If a person has a 100K and leverages to 50% they can buy 200K worth of a stock that may pay a 20% dividend.
Do you know of a real company that pays a 20% dividend? I don't. If there were such an animal it would be arbed to the max on the margin loan cost versus the dividend.
Indeed brokers do make money on the spread between their cost of funds and their lending rates. So do banks. It's called business
The person thinks that they are doing well to get the 40K in dividends and pay 10K in interest. They net 30% and take home about 15% after taxes.
Last I looked, marginal tax rates were not 50%.
The broker collects 12% on the stock loan of 200K which is 24K and a 6% spread on the margin interest.
12% on a stock loan would be very unusual. Frequently stock loans involve negative rebates.
The brokerage makes as much as the client and the client has all the risk. The client could reduce risk and go to cash, collect the 20% dividend, pay no interest, and collect 9% on the stock loan (which the broker is unable or unwilling to tell him about).
Again, individuals can't participate in stock lending programs except under very unusual circumstances. Buffett could do it. Joe six pack with his hundred shares can't.
The client could reduce risk, and take home 14-15%after taxes and the broker would make 2-4% on the lending of the shares."
I have no idea what the bun is talking about in this sentence. I thought the individual was lending the shares. Suddenly the broker is making money off it? But that's typical BoBo. He feels no pressure to make sense.
And when you get into sub-pennies trading on an unsolicited quote basis, any talk of a short, naked or otherwise is simply stupid. Margin and carry requirements alone make it an economically suicidal action.
Tashkent Basher Drop-box.
AI
