How to short

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How to short

Postby Jerilynn » Mon Apr 30, 2012 1:34 pm

I'd like to short TIP, is there a way to do that on-line with VBS or would I need to call?
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Re: How to short

Postby awval999 » Mon Apr 30, 2012 1:37 pm

I know with Fidelity (my brokerage) you have to set up a margin account first. This involves a credit check and a 48 hour delay; again this was this Fido.
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Re: How to short

Postby Jerilynn » Mon Apr 30, 2012 1:41 pm

awval999 wrote:I know with Fidelity (my brokerage) you have to set up a margin account first. This involves a credit check and a 48 hour delay; again this was this Fido.

I'll betcha a pizza, Vanguard is the same.

How does the margin account work?

I've never shorted anything before, so I'm just interested in it to see how it works.
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Re: How to short

Postby pkcrafter » Mon Apr 30, 2012 1:49 pm

Jerilynn wrote:I'd like to short TIP, is there a way to do that on-line with VBS or would I need to call?


Why? Do you know something we don't?

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Re: How to short

Postby hicabob » Mon Apr 30, 2012 1:49 pm

Jerilynn wrote:
awval999 wrote:I know with Fidelity (my brokerage) you have to set up a margin account first. This involves a credit check and a 48 hour delay; again this was this Fido.

I'll betcha a pizza, Vanguard is the same.

How does the margin account work?

I've never shorted anything before, so I'm just interested in it to see how it works.

I'm sure it is the same - keep in mind, you will personally have to pay the divvy whilst you are borrowing the shares.
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Re: How to short

Postby tetractys » Mon Apr 30, 2012 1:50 pm

I would call VBS and ask how they work. Margin means you borrow more shares than you pay for up front. And of course depending on where TIPS go, it could be very good or very bad. Margin Call means you pay for the loss on the borrowed shares now and return them immediately, no more waiting--they aren't yours and the owner wants them back. Oh ya, and divs per above. Good luck -- Tet.
Last edited by tetractys on Mon Apr 30, 2012 1:55 pm, edited 2 times in total.
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Re: How to short

Postby zotty » Mon Apr 30, 2012 1:52 pm

You need to upgrade to a margin account first. It's a form that you send by mail (maybe fax).

You understand that you are on the hook for dividend payments, right? You'll have to make good on whatever the fund pays to the stockholders.

Good luck.
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Re: How to short

Postby Jerilynn » Mon Apr 30, 2012 2:26 pm

zotty wrote:You need to upgrade to a margin account first. It's a form that you send by mail (maybe fax).

You understand that you are on the hook for dividend payments, right? You'll have to make good on whatever the fund pays to the stockholders.

Good luck.

Yes, I knew about the dividends.

If I am reading correctly, the interest rate Vanguard charges is around 8%, does that seem correct?
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Re: How to short

Postby imagardener » Mon Apr 30, 2012 5:59 pm

You don't have to have a margin account to short certain ETF's, they have an ETF just for that reason.
If you have a brokerage account you too can short TIPS.

Here is a list it took me 30 seconds to find and there are no doubt many, many more.
Read up on each one, they are not all the same short ratio. TPS for example is negative 2X the daily performance not just 1X

ProShares Short 20+ Year Treasury (TBF)
ProShares UltraShort 7-10 Year Treasury (PST)
ProShares UltraShort 20+ Year Treasury (TBT)
Direxion Daily 10-Year Treasury Bear 3x Shares (TYO)
Direxion Daily 30-Year Treasury Bear 3x Shares (TMV)
ProShares UltraShort TIPS (TPS)
ProShares Short High Yield (SJB)

Disclaimer: Been there and done that with TBT a few years ago. Turns out the 20 year Treasury does NOT have to increase it's yield after all. Not lol.
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Re: How to short

Postby xerty24 » Mon Apr 30, 2012 6:55 pm

Jerilynn wrote:Yes, I knew about the dividends.

If I am reading correctly, the interest rate Vanguard charges is around 8%, does that seem correct?

It's unlikely Vanguard will charge you to borrow shares for short selling. The 8% is if you buy on margin - here you would be selling TIP shares and have additional cash in your account.
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Re: How to short

Postby grabiner » Mon Apr 30, 2012 8:14 pm

imagardener wrote:You don't have to have a margin account to short certain ETF's, they have an ETF just for that reason.
If you have a brokerage account you too can short TIPS.


Note that inverse ETFs don't behave the same way as short holdings; they are inverse to the daily returns. Thus, if an ETF goes up from $100 to $110 and back to $99, an inverse ETF will go down from $100 to $90 (a 10% loss) and then back up to $99 (a 10% gain). In contrast, if you actually shorted the ETF, you would make a profit of $1.

Another way to look at this is that an inverse ETF increases your short position when the market falls, while shorting an ETF decreases your short position when the market falls.
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Re: How to short

Postby nisiprius » Mon Apr 30, 2012 8:39 pm

I don't think Grabiner is being sufficiently alarming about these leveraged ETFs. They are basically for people who want to speculate on single-day movements.

FINRA has specifically issued a warning about them. Read the press release and read their actual alert, Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors.

Read ProShares' own description: "Due to the compounding of daily returns, ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period." That's euphemistic. What they're saying is that in a volatile market even if TIPS decline a buy-and-hold investor could lose money in this "UltraShort TIPS" fund. The Summary Prospectus says it a little more plainly: "A Fund will lose money if the Index performance is flat over time, and it is possible that the Fund will lose money over time even if the Index’s performance decreases, as a result of daily rebalancing." "The Fund does not seek to achieve its stated investment objective over a period of time greater than a single day."
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Re: How to short

Postby happymob » Mon Apr 30, 2012 11:50 pm

A non-margin alternative to direct shorting is to get your account option-enabled and buy puts. I don't necessarily recommend this, but if you can't get (or don't want) a margin account, for whatever reason, you may be able to buy options.
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Re: How to short

Postby Jerilynn » Tue May 01, 2012 12:16 am

Thanks for all the replies. At this point, it's not worth it to me to do it just to see what it's like for a lousy $500 investment. In 50 years, I'll make another post asking about how to short real estate that is below 100' MSL. :twisted:
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Re: How to short

Postby xerty24 » Tue May 01, 2012 12:42 am

Jerilynn wrote:Thanks for all the replies. At this point, it's not worth it to me to do it just to see what it's like for a lousy $500 investment. In 50 years, I'll make another post asking about how to short real estate that is below 100' MSL. :twisted:

Just get a margin account - thats all it takes, and you might want one anyway so you can buy and sell things the same day, while the ACH is en route, etc. Then you can short TIP or not, but it's just as easy as buying any other stock/ETF.
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Re: How to short

Postby pshonore » Tue May 01, 2012 8:48 am

I'm not sure its quite that easy; first you (or your broker) has to find shares to lend to you to deliver to your buyer when you short something. If you're talking about high volume, widely held stocks that should be fairly simple but for many stocks, its not and there can be a charge for that. Also be aware that if you use the margin features of an account, your broker can lend any of your shares at will. If your shares get lent and there is a dividend paid, you do not get the dividend but rather receive a "payment in lieu of". Those are usually taxed as ordinary income and not as qualiifed dividends. Most brokers will gross up your "payment" to cover any additional taxes if you request it but thats just more hastle. I own shares of a closed end muni bond fund that get lent out. My tax free payments were suddenly taxable income. Kind of messes up your tax planning.
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Re: How to short

Postby awval999 » Tue May 01, 2012 10:43 am

pshonore wrote:I'm not sure its quite that easy; first you (or your broker) has to find shares to lend to you to deliver to your buyer when you short something. If you're talking about high volume, widely held stocks that should be fairly simple but for many stocks, its not and there can be a charge for that. Also be aware that if you use the margin features of an account, your broker can lend any of your shares at will. If your shares get lent and there is a dividend paid, you do not get the dividend but rather receive a "payment in lieu of". Those are usually taxed as ordinary income and not as qualiifed dividends. Most brokers will gross up your "payment" to cover any additional taxes if you request it but thats just more hastle. I own shares of a closed end muni bond fund that get lent out. My tax free payments were suddenly taxable income. Kind of messes up your tax planning.


Can someone please confirm this? I have never heard of such a thing when dealing with a margin account.
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Re: How to short

Postby xerty24 » Tue May 01, 2012 4:14 pm

Vanguard isn't going to charge you borrow shares - they will just tell you there aren't any shares if they would be at all pricy to secure. And besides, all that happens behind the scenes and it's not like you have to do anything. Place your order and maybe it goes through, or maybe it gets rejected since there are no share to borrow. There should be no problems for OP - TIP is easy to borrow.

awval999 wrote:
pshonore wrote:I'm not sure its quite that easy; first you (or your broker) has to find shares to lend to you to deliver to your buyer when you short something. If you're talking about high volume, widely held stocks that should be fairly simple but for many stocks, its not and there can be a charge for that. Also be aware that if you use the margin features of an account, your broker can lend any of your shares at will. If your shares get lent and there is a dividend paid, you do not get the dividend but rather receive a "payment in lieu of". Those are usually taxed as ordinary income and not as qualiifed dividends. Most brokers will gross up your "payment" to cover any additional taxes if you request it but thats just more hastle. I own shares of a closed end muni bond fund that get lent out. My tax free payments were suddenly taxable income. Kind of messes up your tax planning.


Can someone please confirm this? I have never heard of such a thing when dealing with a margin account.

Yes, that stuff can and sometimes does happen. Depends what you hold - mutual funds and ETFs are unlikely to have any complications (possibly barring muni ETFs, but who buys those?). If you really care, you can have a cash account and a margin account and hold things separately based on whether you want them lent out or not, or move to a better broker like IB who will pay you loan your stocks or let you loan specific ones yourself.
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