Owen

A Blockbuster Arbitrage Opportunity

I understand. Your daily statement should help figure it out, if you have a limited number of short positions. Sadly, IB doesn't separate interest charges to margin deficit and borrowing costs on the daily statement, but only on the monthly one, so it's up to us to do the daily math. Several of us have asked IB to add this data to the daily report, but they haven't done so yet.

I guess this must seem petty and insignificant to some of the readers, but in the world of arbitrage, one or two percentage points may mean the difference between a profitable trade and a waste of time.

A Blockbuster Arbitrage Opportunity

I'm impressed! I didn't realize those borrowing rates were negotiable. I had to give up on several promising arbitrage opportunities due to steep borrowing costs.

A Blockbuster Arbitrage Opportunity

Interactive Brokers actually does charge for borrowing BBI. As of today, the rate is 6.12%, with about 300,000 shares available for shorting. This rate fluctuates on a daily basis, and has been as high as 7.62% on Tuesday. The cheaper class B shares, on the other hand, cost nothing to borrow, which I guess is no surprise.

At over 6% a year cost against this trade, the spread only makes sense if it shrinks soon, and there's no indication that it will. As an alternative to shorting BBI, you may consider writing the BBI LEAPs. The Jan2010 2.50 Call is now going for around $1.00, and time actually works in your favour when you're short an option.

Gary, to find out the current borrowing rates, you can go to the IB Account Management site and click on Tools/Short Stock Availability.