Borrowing stock to short is like taking out a loan. You pay back the principal upon maturity plus interest. Interest in this case refers to short stock fees and dividends.
What is the equivalent of the maturity period in this case? Can I hold on to a short stock position forever so long as I keep paying out the dividends and satisfying the maintenance margin?
What if the lender wants his or her stock back?
Can I hold on to a short stock position forever so long as I keep paying out the dividends and satisfying the maintenance margin?
Yes, you can hold on to a short stock position forever so long as you keep paying out the dividends and satisfying the maintenance margin AND the stock remains borrowable.
What if the lender wants his or her stock back?
If the lender sells his stock, your broker will be notified that the shares must be returned. Because your broker makes a profit from lending fees that the shorter pays, he will attempt to locate other borrowable shares so that you can keep your short position open. If your broker cannot locate borrowable shares, you will have to buy the shares in the open market to cover the short.
During trading hours, some brokers provide a forced buy in notice, giving you until 4 PM to cover. If this occurs when the market is closed, the broker is likely to just cover the position.
If the owner of the stock wants it back, they "call" it back. There are no guarantees of how long you can keep it for your short, or the cost involved to hold it.
Usually, everyone knows about a particular set-up (e.g. a warrant or convertible bond mispricing) that is attractive for arbitrage. This causes the associated stock to be in high demand thus expensive to borrow for shorting, or impossible to find for any price at all.
