Overstock has struck a deal to take the online retailer into a new arena: helping hedge funds short stocks.
Overstock’s t0 subsidiary acquired broker-dealer SpeedRoute Technologies on Wednesday August 26, adding crucial stock trading infrastructure to its list of offerings.
OverStock founder and chief executive Patrick M. Byrne told Business Insider in an interview on Friday August 28 that he was especially excited about a new service that will help investors looking to short hard-to-borrow stocks.
“Hedge funds are going to love it,” said Byrne.
Hedge funds typically borrow stocks from buy-to-hold investors when they think the stock price is going to fall. They aim to sell the stock after borrowing it, buy it back at a lower price, and pocket the difference before returning it to the long-term holder. Some stocks are difficult or expensive to borrow however.
Byrne said the new service is part of a series of moves Overstock is going to announce this fall. The stock-shorting product, which will also be available to day traders and retail investors, could be available as soon as late September.
Overstock will offer only 10 stocks to short. Byrne thinks that number could expand to as much as 50 to 100 hard-to-borrow stocks by the end of November 2015.
“Securities lending is an extremely profitable business on Wall Street.”
It’s the latest in a series of ambitious moves by Byrne to keep Overstock relevant at a time when the online retailing space is filling with new, well-funded competitors chipping into his business model. In early 2014, Overstock began accepting bitcoin as payment, making it the first retailer at that time to do so.
Overstock shares have languished so far this year. The stock is down about 17% in 2015.
Around 8.5% of Overstock’s shares are out on loan, according to data from FinViz, making it a popular target among short sellers.