Short sellers waiting for the recently listed Ferrari NV shares are bound to face higher costs in order to maintain their bets on the Italian supercar producer.
According to Ihor Dusaniwsky, the managing director of research at S3 Partners that offers advice to investors, almost all the Ferrari shares available to be borrowed have been lent out, which led to an increase in the borrowing cost for the few remaining shares.
Dusaniwsky stated that “No one can go and short a big block of stock right now. Right now, we’re literally talking about dribs and drabs and the end piece of the pot roast.”
Ferrari has shown a sudden increase in its October trading launch in the U.S. after the luxury sportscar maker set a price for its shares at the top of the range demand. Since then, the stock has fallen 8% from its IPO price due to a lack of confidence regarding the carmaker’s chances of supporting the high valuations of a luxury brand.
Short sellers borrow shares and then sell them in the hope of buying them back at a lower price and then return them to their owners. Meanwhile, they must also pay interest to the owner. According to data from S3, short sellers placing bets against Ferrari have been paying an annual interest rate between 17% and 30% to borrow the carmaker’s shares.
However, because of a short supply, new borrowers are charged 90% and current borrowers will end up seeing the rates they pay move towards that level, as Dusaniwsky explained.
Controlled by Fiat Chrysler Automobiles NV, Ferrari limited the share supply to potential short sellers by putting only 9.1% of its shares on the market.