Short Selling: Strategies, Risks, and Rewards by Frank J. Fabozzi, Cliff Asness

By Frank J. Fabozzi, Cliff Asness

The newest theoretical and empirical facts on brief promoting within the usa and in the course of the world
To get the main good fortune out of what the finance neighborhood regards as a dicy enterprise, brief dealers want high-level details. the idea and perform of brief promoting bargains managers and traders the data they should maximize and increase their brief promoting features for higher gains. Frank Fabozzi collects a bunch of industry specialists who proportion their wisdom on every thing from the fundamentals to the complicated on the planet of brief revenues, together with mechanics of brief promoting, the empirical proof on short-selling, the consequences or regulations on brief promoting for funding innovations, short-selling recommendations pursued via institutional traders, and picking out short-selling candidates.
Frank J. Fabozzi, PhD, CFA (New wish, PA), is the Frederick Frank Adjunct Professor of Finance at Yale University's institution of administration and Editor of the magazine of Portfolio administration. he's the writer or editor of over a hundred books on finance and making an investment.

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551–584. 16 THE MECHANICS OF SHORT SELLING will be denied. Loans in stock specials will be expensive for well-placed investors and impossible to obtain for retail investors. Specials tend to be driven by episodic corporate events that increase the demand for stock loans or reduce the supply of stocks available for loan. For example, initial public offerings, dividend reinvestment discount programs, and dividend payments of foreign companies often lead to an increase in borrowing demand and/or a reduction in the supply of available shares.

The basis is effectively the repo rate (for the period until settlement date) adjusted by the expected dividend. The basis is also referred to as the net interest cost or carry. The buyer of the futures contract pays the net interest cost to maintain the long position; the seller of the futures contract earns the net interest cost for financing the buyer’s long position. Thus, a comparison of the cost advantage to shorting single stock futures rather than using a stock lending transaction comes down to empirically determining which has the lower net interest cost.

The S&P 500 index option contract is European, while the OEX is American. Both index option contracts have specific standardized features and contract terms. Moreover, both have short expiration cycles The dollar value of the stock index underlying an index option is equal to the current cash index value multiplied by the contract’s multiple. 00. 00 × $100). For a stock option, the price at which the buyer of the option can buy or sell the stock is the strike price. For an index option, the strike index is the index value at which the buyer of the option can buy or sell the underlying stock index.

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