Borrow cost in option prices
Definition · Level 4 · Naked options
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In a hard-to-borrow stock, short sellers pay the fee through the options: puts trade expensive and calls cheap compared with parity at normal interest rates, so a short synthetic costs more.
Example
A 30% fee over three months on a $50 stock adds 3.75 to the cost of the short synthetic.
Where Tradecraft teaches it
Level 4 · Naked options, in the lesson “Short synthetics & hard-to-borrow stocks”: How a short call plus a long put copies short stock, and how a hard-to-borrow stock shows up in option prices.
Related terms
- Short SyntheticSell a call and buy a put at the same strike: it behaves like being short 100 shares, without borrowing any.
- Blow-upLosing all or most of an account in a single event, usually from oversized short-vol or leveraged positions.
- Calendar Spread – CreditBuy the near-term option and sell the longer-term one at the same strike.
- Call Ratio SpreadBuy one call and sell two higher-strike calls.
- Delta hedgingTrading the underlying (or futures) to offset a position’s delta, so small moves barely change the profit and loss; it leaves gamma, theta and vega.
- Diagonal Spread – Long leg expires firstBuy a near-term option and sell a longer-term one at a different strike.