The 5.625% Gabelli Utility Trust (GUT-A) has been called for 1/31/2022 and holders are snoozing.
As pointed out by Justin in comments the issue is trading at $26.61 and it will have 13 cents worth of accrued dividend so redemption at $25.13
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11/22/2024
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$26.20 on 1/7/22
Whose buying?
Finally… sort of… down today below 26.. Have an open order to buy to cover at $25.35, but will probably just close it out at the end of the day if it is still below 26 and take my $500 bucks I made on the trade or so to use on a big steak dinner..
And somebody just bid it up to 26.40… Oy vey….
There is a free website that lists the “hard to borrow” rate and the number of shares available to short. The website pulls the data every 15 minutes from Interactive Brokers and publishes it for public use. You do not have to register to use the website and/or have an IBKR account. They show one year of both rates and availability. Unfortunately they do not appear to have data for GUT-A. The one III type issue that shows up today with the highest loan rate is LANDO, a garden variety 6.0% coupon preferred from Gladstone Land. Today’s quote shows 45,000 shares available to borrow @ 160%.
Link:
https://iborrowdesk.com/report/LANDO
We currently have no positions in LANDO. We did own it in many accounts but sold it when we thought it yields to first call was too low IIRC. We were NEVER short LANDO in any account. If we were sure we could loan it out at 160%, we would load up on it!
Lots & Lots of SNOOZERS out there Tim. When I look thru my portfolio and look at the “call dates” I say to myself these people are truly snoozers. I have preffered’s trading at well over $28++ & even $29+. When you get your old trusty calculator out you say these folks buying it at this price are going to make enough for a pack of gum & a candy bar–maybe.
Etrade filled a short sale of 550 shares for me in a bunch of smaller pieces.
if they cancel them because they found out that I shorted it after a full call was announced, I’ll let everyone know.
that is not how it works..
Trades don’t get cancelled on a whim, they don’t get cancelled because a call was announced etc. The only reason trades would get canceled is because of a clearly erroneous transaction. IF a trade was executed after the redemption date that could potentially be cancelled but the announcement date does not matter.
Ok, I stand corrected. I thought they had a firm rule against shorting securities that have been called, since there is the possibility of a fail to deliver if the short is open on the redemption. date.
no, a FTD should not happen on the redemption date. DTC will match everything up and the proceeds will flow through to the shareholders.
What makes this weirder yet is that I pointed this out in Reader Initiated on 12/30 and 12/31 and GUT-A has actually gone UP since then… It was 26.05-26.50 at the time I posted on 12/31..
This is not so unusual. The hard to borrow rate is 275% (cost to short). Shorts are caught in a squeeze. Those that hold at what appears to be a very high price are making much more lending out their shares than they will lose on their shares when called at $25.00 plus accrued dividends.
I don’t think it will stay up there. The brokerage industry vendor who would normally send a notice that this has been called for redemption will likely catch up and send the notice fairly shortly, and any firm who is trading off this feed will immediately tank the price down to $25 and change.
for something that is so hard to borrow, they sure filled my short sales pretty quickly, as I think they all executed between 9:30 and 9:32 this morning.
Why does the fact that it is hard to borrow matter with regards to your speed of execution? The vendors I have access to already have this marked as called.
Justin, did you get quoted the 275% rate?
No. 18%.
Correction. I got multiple rates.
100 shares were at $.02 per day, others were in the .05 range and about a 1/3rd were at $.09 per day.
Justin, please check the rates on a daily basis…
and also .09 per day held to call date? me no like..
I am closing those shares out if it doesn’t fall below $26.00 by Friday.
I definitely remember the adage…
“the market can stay irrational longer than you can stay solvent”….
At .09 per day it will cost you around $2.50 per share until the call date. The idea that people that aren’t selling are somehow ignorant is just plain wrong. Nobody is this stupid.
MarketWatch shows 6,500 shares short as of 12/15. Over 1 million total shares. Those 6,500 shorts could have easily covered in the last 3 days. So how are those tiny few shares controlling the 1+ million?
Maybe your short was executed quickly because there are desperate shorts hoping to buy and cover as soon as possible before the borrow rates go even higher.
TheGoat, what is the short interest? I assume it’s a tiny fraction of the overall issue. Why isn’t everyone else who will only get $25.13 selling right now? I don’t think you solved it as well as you assume.
who is bidding?
The bidders are either those who are stuck short and don’t want to pay 275% so they are buying to cover. Or else, the bidders are those who somehow know that they can lend their shares out for more than they will lose. This is a pure manipulation and those that are long know exactly what they are doing. Those long the shares may take a beating. Time will tell. The borrow rate could go up to 400% tomorrow, and suddenly those that are shorting it now may find they become the new buyers trying to cover. This is where the buyers come from. This is a trap, personally I am not stepping into it. I have seen this before on a number of occasions.
How exactly is it manipulation?
Maybe that isn’t the right word. What is your explanation? Do you really believe that this is simply a matter of people snoozing? Are you short?
You lose money by shorting, so why short? It trades here because there isn’t any financial incentive to make it trade where it should due to the costs involved. If the locate supply opens up and the costs go down, it’ll trade down to parity until then, nothing to do.
Or some big holder will suddenly wake up and try and dump their shares for the elevated price and tank the price in the process down to where it should be.
There are a million shares outstanding, and it has been trading 3-5000 a day over the last 3 days versus an average volume of 300….
I am taking the very calculated risk that it won’t trade at 26.50 for the next 3 weeks, but that some big investor will finally wake up and drive down the price trying to take advantage of the snoozers and dumping 10-20,000 shares.
Even with a loan rate of .09 a day, I can open and close the short every day until the price tanks and a $1.00 per share gain on the short is worth the $.09 in borrow fees.
And if this trades all the way to 1/31 at 26.50, I will probably take a decent sized loss on what should be profitable 100% of the time.
This stock is Wiley E Coyote out over the cliff churning his legs really fast trying not to fall, but fall he will…
>I can open and close the short every day until the price tanks and a $1.00 per share gain on the short is worth the $.09 in borrow fees.
You’re going to lose more on the bid/ask spread than the borrow fees doing that!
You say “it’s not so unusual”, but the reason we’re talking about it is because it is, in fact, extraordinarily unusual for a called bond to trade like this.
None available to short at Fidelity, as of yesterday (1/3).