Monday, November 5, 2007

The Matter of Shorting QID (synthetic Ultralong)

Today something very unusual happened with QID, the Ultrashort Nasdaq 100 ETF.

I use Interactive Brokers and today was the first time EVER since I started trading that QID was not available to short. I like using QID as an Ultralong by shorting it. But today, after this mornings trading, there were no shares available in IB's inventory. None at the end of the day either! The same applied to the SDS, Ultrashort S&P 500 ETF.

Now, I am very surprised that an ETF that trades in the 30 million shares/day range would have no inventory available to short.

Something is going on...but I am not sure what. I will continue to investigate. My calls into IB were unproductive, they would only give me the simple answer "no inventory available, we will notify you when shares are available"

I have a funny feeling that either (1) IB is preventing this trade by locking up the shares or (2) hedge funds are locking them up to prevent shorting. I really don't see how such a large and liquid ETF can not have ANY inventory available to short.

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