ftd with borrow rate spike

When the cost to borrow a stock spikes, it signals either (a) shorts have HIGH conviction despite paying premium — bearish continuation — or (b) utilization is hitting recall risk — bullish squeeze setup. Two readings: Z-SCORE BREAKOUT (borrow fee z > +2 vs 60d baseline → short the stock) and SQUEEZE TRIGGER (borrow fee at extreme AND price reverses up → long the squeeze). Sourced from `stock_borrow_rates` (iborrowdesk daily, ~1y depth).

Beschwitz, Honkanen & Schmidt (2024) JFE "Costly Arbitrage and the Short-Squeeze Premium." Novel finding: when all three short-side stress signals fire simultaneously — top-decile borrow-rate Δ, Reg-SHO threshold inclusion, and elevated FINRA short-volume ratio — the next 5 trading days mean-revert sharply higher. The 3-table confluence is what makes this distinguishable from generic short-interest crowding. Reported: 18% annualised, Sharpe 1.6 post-cost, 5-day hold, LONG-only.

The SEC's Threshold Security List names securities with 5+ consecutive settlement days of failures-to-deliver ≥ 10,000 shares AND ≥ 0.5% of shares outstanding. Inclusion signals persistent FTD pressure (aggressive shorts that can't locate borrow) and triggers Reg SHO close-out within 13 settlement days — historically tied to above-average squeeze risk 1-4 weeks post-inclusion. We trade two variants: continuation SHORT on first-time inclusion with weak price action, squeeze LONG on sustained inclusion + reversal cue.