Saturday, June 15, 2019

New Opportunity

This week I received an e-mail from my broker.
Sculpture of a Bull on Wall Street. His bronze nose shines gold as people have rubbed his nose clean of the protective patina.
Wall Street Bull Sculpture.

They wanted me to sign up for their program to lend my stock to other clients who are shorting the stock.

So a little suspicious of the offer. I called my broker by their regular number.

A piece of advice, check such offers are genuine with your broker, opening access to your account is not a good idea, so I wanted to know that this offer was genuine.

Turned out it was a genuine offer.

Read What are the risks of Loaning your stocks to a broker to short?

When I spoke to the representative from my broker on the telephone. He was able to confirm that the offer was genuine. I was very happy to sign up. Loaning stock to your broker to pass on to short sellers can earn you cash.

The process is:

A short seller needs stock to sell.

The Broker finds stock

The broker  Borrows the stock from an account

Places cash equivalent to the stock price, plus  a little extra into an escrow account.

Loans the stock to the short seller.

The short seller drives down the stock if they can.

The broker then either buys back the stock for me as a lender at a new low price or gives me back the stock. Plus I have been given cash in the form of a percentage of the charges made on the short sellers charges.

I am paid a daily rate for the loan of the shorted stock. This can range from pennies to several hundred dollars depending on the value of the stock, its scarcity  and the possible cost of recovery.

The daily rate of payment accrues for the period of the loan and once per month on a set date my broker will pay this cash fee into my brokerage account to re-invest.

At all times the stock remains mine, though I lose voting rights and any dividend payable is paid from the brokers account  not by the company.

At present within opening this account I have two stocks taken into a loan position. They only pay a few cents a day because I only have small positions. But they could make a nice little return since both only pay a dividend in December and January so even the few dollars that will accrue will add nicely to my expected returns for June 2019 and maybe for the rest of the year, if these stocks are favorites of the short sellers.

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Take a look at : What are the Risks of Loaning a Stock to your Broker?