NorthWest Biotherapeutics Inc (NWBO)

[Chiugray]

Sentiment, I think the confusion may be the difference between on-exchange (fail to delivers, shorting of shares) vs off-exchange (options, synthetic, derivatives). My understanding is there are synthetic contracts/options, meaning the client and market maker do a "off-the-exchange/OTC", side agreements. (A layman's disclaimer, I researched and hope my understanding is correct.)

Mechanics

1. Shorting Entity (Hedge Fund, client to MM) will do both a. + b.
a. Sell a call option, at the money
- (creates an obligation to sell stock if it hits the strike price)
- If stock price drops, it earns the money received for selling this call option
- If the stock price increases, they have to buy shares to sell back, ie risk unlimited liability and loss.
- Becomes a "naked" call option and liability

b. Buys a put option at the same strike and expiration
- (obtain the right to sell stock at the strike price)
- If (NWBO) stock price drops, this goes up in value (This is where Shorts make all their gains if successful.)

Because all this is naked, no collateral is required:
- Cash required to short a company is very low, except for high fees
- MM is allowing this to earn the high fees

2. Market maker
- Creates both contracts, earns fee
- Takes the opposite side of these option trades, earns fee
- They buy the call option (long call)
- They sell the put option (short put)
- They hedge this exposure by shorting actual shares by borrowing from Brokerage firms who lend out their Retail customer’s (on margin accounts) shares for an interest rate. So they pay interest/fees for these loans.