Why would you lend a stock to someone?
I'm reading all about shorting and it seems like the person who lends it has no incentive to aside from the fee.
I'm trying to Google search it out but I haven't found much other than "its usually stock controlled by an investment firm and they just take it from their customers"
Is that true?
Smart people sell options on their lots. I earn an extra $500-$1000 per month just from option premiums
The real question is why would one NOT sell options?
>>1244753
Investment firms hold their own stock for most equities that they invest their clients in so their clients are usually buying straight from them giving the client the best and quickest trade execution. Nothing is "lent" to anyone, you simply have placed a bet on the direction of price movement with a promise to later buy the underlying stock from said bet and then sell it for a profit (called "covering your short").
>>1244764
No you don't. You have to underwrite options and unless you work for a brokerage or bank then you're a lying little shit.
OP, use investopedia mate. It's free and pretty simple to understand.
>>1244796
I sell covered calls each month on my stock lots that are going to move sideways. The premiums I collect are good for $500-$1000/month
For example I sold 2 PYPL contracts and 1 MDT contract this month both May20 slightly out of the money calls I got $480 from those 3 alone
This is a good question. Thinking it through, it seems like any benefit to be had from loaning out a stock would also be had by just continuing to hold it. If the stock goes up in price then the short-seller loses money when he returns the borrowed stock. But the lender would have profited anyway from the stock rising in price regardless of if he lent it out to someone.
I bet the answer is something to do with hedging risk on other investments but I can't think off the top of my head of a good explanation. Does anyone know?
Some people are in it for the long long term and plan to hold the stock for a while assuming it goes up so volatility doesn't really affect them
>>1245176
You dont directly lend the stock. Your brokerage firm does. They dont tell you someone has borrowed your stock. Its a service they provide for a fee to their customer. Some stock cant be shorted. The broker decide which can, usually liquid stock.
The one lending is paying interest and the dividend on the stock
>>1244796
Thanks. I'll check out investopedia.
>>1245226
This.
isn't this like...directly on investopedia which would have been the first google result?
The basic explanation is that shorting isn't free. You pay interest on it. The interest pays for the broker to provide the service of borrowing the stock to you.
They don't really lose or gain any money on it (risk) since they do so much of it and it all averages out, but you're paying them for the service. And the person who it's actually borrowed from doesn't get anything for it, but they don't actually lose access to any stock. It's borrowed invisibly by broker and replaced as necessary if somebody wanted to sell it.
whats so difficult to understand.
The broker instead of collecting 2 trade fees on one purchase of stock can receive several. minimum 4 plus interest to cover the risk.
>>1245507
I wasn't getting any hits for investopedia googling :/.
>>1245775
I guess I was confused and wasn't understanding the broker part. I was thinking why would one person just lend their stock away but when a broker is doing it, it makes more sense.
