Replies to post #79892 on China Growth Stocks

[Drexion2004]

Its worse than that. Depending on your broker, if they can't find shares to borrow, they will NOT allow you to exercise your options to establish a short position. Even if they are able to find shares, they will charge you a high interest to maintain the borrow.

Varies drastically from broker to broker on how they handle this. Some are simply much more 'legit' when observing the naked-shorting rules.

Using 'lower quality' brokers like Etrade, ThinkOrSwim, TdAmeritrade will actually benefit you in this instance since they should just allow you to exercise even without borrow shares.

-Fernando

[KOkre]

If I exercise a put for a set price, wouldn't I just receive that cash?

[ratobranco]

Fernando is right. The put is a contract that allows you to sell shares to the counterparty at a set price. However, you have to own or borrow actual shares in order to sell them (you can't sell phantom shares to someone that you just conjured up from out of nowhere--if you did, what would they really own?).

So, if you don't own shares, and the broker can't find a borrow for you (or isn't willing to violate REGSHO), then you're up shit's creek basically. The lower quality brokers seem to be better here, as they'll just allow a naked short.