Long Horizon Short Position in PA

Its Grisha · Post by **Its Grisha** » Thu Dec 12, 2019 4:55 pm

I have a simple relative value trade I want to put on for the 1-2 years. Expect a quarterly adjustment of positions to maintain preferred ratio. Short side is an ETF that does $100 million in ADV. NAV of whole long-short trade would be below $50k, lets assume with 200% gross exposure in two ETFs.

Is this at all feasible or am I going to be murdered on borrow fees through a retail broker? Anyone ever done something similar? My only PA experience is buy and hold.

kloc · Post by **kloc** » Thu Dec 12, 2019 5:57 pm

Depending on the level of borrow cost, it might be perfectly doable. You should be able to get some sense for the borrow cost level from your broker; for example, Interactive Brokers has daily dumps of borrow costs for multiple markets and for US you can get it from the following FTP link:

ftp://ftp3.interactivebrokers.com/usa.txt

These values change over time and they can sometimes spike quickly, but it's a start. You should get historical BC levels, but this might be tricky and it depends on who your broker is.

Obviously, compare these numbers to your expected strategy return and you should have the answer to your question...

Its Grisha · Post by **Its Grisha** » Thu Dec 12, 2019 6:31 pm

Exactly what I was looking for, thank you! At current rates it all looks good, my understanding is there's zero guarantee against changes, so if they 10x the borrow rate on me there's probably no choice but to unwind. That's a constraint I can live with though.