02-04-2013, 08:23 AM
trans,
Regarding your point 5. When you loan shares out, you loan a specific # of shares not the value. For example, I lend out m 100 shares and whenever I decide to call them back in I get a 100 shares back so there is no lost upside or downside. The broker agrees to cover you and ensure you get the shares back. For larger transactions, you get a letter of credit from a third party major financial institution (ex. Wells, Chase, Citi etc.) this letter of credit is market to market every day so that you are always "insured" against the then current value of the shares in case they are not returned.
Basically they do there best to make sure there is as little chance as possible of a loss (the fund and major financial institution goes bankrupt on the same day and your broker says they won't cover it) and you get a small % interest for lending it out while still getting all the benefits of owning the stock.
The holders lending out the shares have the ability to cause a squeeze but only if enough of them decide they wont lend out shares such that some shorts are forced to buy them back. In most companies this situation never arises bc the short count is a relatively small amount of the float and holders of the stock are willing to lend shares since there is very little risk to them. IOC is unique in that 10-15 holders could say they won't lend the shares out and a major squeeze would happen, which is a very rare event. Who knows if this level of coordination or agreement is practical or even likely but the fact that its even possible is rare.
Hope this helped a bit.
Regarding your point 5. When you loan shares out, you loan a specific # of shares not the value. For example, I lend out m 100 shares and whenever I decide to call them back in I get a 100 shares back so there is no lost upside or downside. The broker agrees to cover you and ensure you get the shares back. For larger transactions, you get a letter of credit from a third party major financial institution (ex. Wells, Chase, Citi etc.) this letter of credit is market to market every day so that you are always "insured" against the then current value of the shares in case they are not returned.
Basically they do there best to make sure there is as little chance as possible of a loss (the fund and major financial institution goes bankrupt on the same day and your broker says they won't cover it) and you get a small % interest for lending it out while still getting all the benefits of owning the stock.
The holders lending out the shares have the ability to cause a squeeze but only if enough of them decide they wont lend out shares such that some shorts are forced to buy them back. In most companies this situation never arises bc the short count is a relatively small amount of the float and holders of the stock are willing to lend shares since there is very little risk to them. IOC is unique in that 10-15 holders could say they won't lend the shares out and a major squeeze would happen, which is a very rare event. Who knows if this level of coordination or agreement is practical or even likely but the fact that its even possible is rare.
Hope this helped a bit.