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Investors pay top dollar to short Snap

Reuters  |  NEW YORK 

By Megan Davies

NEW YORK (Reuters) - Short-sellers placed more bets that of company Inc would continue to fall on Tuesday, representing about 2.4 percent of trading volume in the stock, even though is one of the most expensive on to borrow.

Around 600,000 were shorted in morning trading, according to Ihor Dusaniwsky at S3 Partners, a financial analytics firm.

"is one of the most expensive to borrow on the Street right now," said Dusaniwsky. "For a stock that's that expensive, its quite a lot of demand."

sellers borrow and then sell they think will fall in value, hoping to profit by buying the stock back more cheaply later on and returning it to its owner.

There was an initial rush to the stock after its March initial public offering.

On Tuesday, hit their lowest point since trading began after lead underwriter Morgan Stanley downgraded the stock and raised concerns about the company's ability to compete against rival Instagram.

In total, interest is now $1.19 billion, down $245 million, or 17 percent, from its historical high of $1.44 billion that it hit on June 1.

Investors are paying a 50 percent to 60 percent fee on their total notional position, or the total borrowed, on an annualized basis to the stock, with Tuesday's spot borrow rates - meaning the price for anyone shorting it today - going at a 70 percent to 80 percent fee, Dusaniwsky said.

That compares with an annual fee of under 0.5 percent for an easy-to-stock. is the second most expensive stock to borrow in the U.S. after Sears Holding Corp, Dusaniwsky said.

The fee is so high because high retail demand for the means there is a small amount of stock available to short, he said.

Snap's will have to drop considerably for short-sellers placing bets now to make money, after accounting for the borrowing fees.

"If I shorted today it has to drop by $1 by end of month to break even," said Dusaniwsky.

The high volume of trading in on Tuesday was being driven more by long holders, who look for the value of a stock to rise, said Dusaniwsky.

"It's not the shorts that are driving the price of down, it's the longs selling their position," he said.

(Reporting by Megan Davies; Editing by Bill Rigby)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)