It's the practice of selling a borrowed stock expecting to buy it back later at a lower price.
In a short sale, a trader sells borrowed stock, hoping it will fall in price and can be repurchased later at a profit.
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These ghouls sell shares they do not own usually borrowed stock, which they sell in the hope of buying it back at a lower price.
The problem came when his brother Otto devised a scheme to corner the market on UCC stock by aggressively buying it, waiting for prices to soar, then forced the short-sellers to repay the borrowed stock.
By making a gamble in 2004, opting to be tried alone on the bank-loan charges, which have to do with sums allegedly borrowed to buy stock.
Instead of holding pledged stock in trust accounts for its customers, says the complaint, Credit Bancorp put the shares in cash or margin accounts, sold or borrowed against the stock and kept the proceeds, sometimes buying more securities with the money.
Come to think of it, the same thing happened in 2000 when a flood of investors borrowed on their tech stock paper profits, only to see their portfolios melt when the tech bubble burst.
If you account correctly for stock buybacks made with borrowed money (even IBM does it) and option grants that obscure salary expenses, you get down to 4% profit real fast unless the economy zooms.
This means Aubrey borrowed a whole bunch of money using his stock as collateral probably to buy boats and ranches and more CHK stock, so when the stock price plummeted by 70% or more like it did, the bankers just sell you out to pay off your loans.
And the basic idea remains buy a company with cash flow using borrowed money, give management a share of the stock, cut costs including plenty of employees and sell at a profit to the equity holders.
To understand the economics of stock lending, consider what happens when the borrowed shares are readily available.
Pros: The dividends can be steadier than stock returns or interest rates and can be borrowed tax-free as long as the life insurance policy stays in force.
As of October 15, 59.6% of the float was sold short, meaning investors borrowed shares to bet on a tumble in First Solar stock to repay those shares when they could buy them more cheaply.
To meet the margins, Lay borrowed cash from Enron and repaid the company with his personal Enron stock.
In a seemingly direct inverse of the price move, the volume of shares being borrowed has also climbed by 30% since the rumour, while the cost borrowing Netflix stock jumped from just 0.78% on an annualised basis, to 4.4%.
In New York, the stock market is down, investors are withdrawing assets from his fund, and he has borrowed four hundred million dollars to cover a hole in his balance sheet.
The alleged method: borrowing shares of restricted stock in several small companies to use as collateral for loans without telling the banks the shares were borrowed.
The going annualized interest rate paid by those who borrowed shares in the social networking company was anywhere from 10% to 40% on the amount borrowed on Friday, compared with 0.25% to 0.5% for the typical big-company stock, according to Robert Sloan, managing partner of S3 Partners, a New York firm that advises hedge funds on counterparty risk and financing of trade.
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