Wrap Technologies, Inc. (NASDAQ: WRTC) sells security products for professionals. The Las Vegas-based company has a $180M market capitalization. 100-day volatility has been consistently above 70 during the past 6 months. The share price had a wild ride from a $4-handle in December 2019, to above $7 this month and came back into the 6s. Starting in December 2019, the borrow fee increased from the 20s to >200%. Investors which contemplate shorting can experience stick shock when they see triple-digit borrow fees on IBKR’s real-time display. A question we encounter is “why would someone pay that much interest?” WRTC is a good example of one possible reason: speculation.
On February 21, WRTC closed at $7.59 per share and the borrow fee was 86%. On February 25, WRTC closed at $5.95. That is a 21% decline in 2 trading days. If we annualize the capital gain for an apples-to-apples comparison to the borrow fee, it is north of 1,000%. The average annualized borrow fee for those dates was 90%. Of course, the scenario could have played out differently.
We are seeing small locates from retail broker counterparties. The borrow fee is 95% with Utilization the same. Short Interest is 15% of the float. This suggests that the largest holders, which are individuals according to SEC filings, may not be making their shares available to lend.
Disclosure: Interactive Brokers
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