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Sometimes when I want to short a stock, my broker says that no shares are available for borrowing.

In this situation, can I buy a put and exercise it immediately and end up with a short position? in this case, who is the person lending me the shares to sell? My broker? It is certainly not the PUT seller.

  • You could probably find the answer in your broker's term in conditions, but one option is that they buy the shares on your behalf with a market order. – Pieter Naaijkens Nov 2 '14 at 17:29
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You can buy a put and exercise it. The ideal option in this case will have little time premium left and very near the money.

Who lent you the shares? The person that sold you the option! In reality, when you exercise, assignment can be random, but everything is [supposedly] accounted for as the option seller had to put up margin collateral to sell the option.

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You are the one lending yourself the shares to sell;you purchase the stock at market price and sell at the strike price of the option to the put seller when you exercise the option.

  • So you are suggesting that I cannot exercise the put unless I own the underlying ? – Victor123 Nov 3 '14 at 3:07
  • Yes, let's say the trade went your way, and the price drops to below your strike price. You can either a)sell the option for higher premium or b)exercise with the underlying being assigned in which case you buy at the market price and sell it at the higher strike price to the put seller which nets you the difference. – Akrasia Lee Nov 3 '14 at 6:10
  • @Victor123 When you exercise it you will find that you have a 100 share short position. I think you should be able to exercise it as long as your account has enough margin to be 100 shares short of the stock. Or whatever the lot size is – von Mises Nov 20 '14 at 2:46

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