This week will mark two key events for the post-IPO trading of Twitter Inc. (NYSE: TWTR). The first issue is that traders and investors will begin to be able to legally short sell the stock. The second is that stock options should begin trading. Both come with caveats, and both may be subjective.

As of last Friday, we had the date that put and call options would start trading as this Friday, November 15. CNBC confirmed the same on Tuesday morning. Be advised that many of these stock options are likely to trade in $2.50 or even $5.00 increments out of the chute. Investors may also only get to make options bets, or hedges, for three months out when the options actually start trading.

On the issue of selling the Twitter shares short, this is complicated. Technically this can occur on Wednesday. Where the problem arises is that finding shares to borrow is going to be tough. We were told that roughly 50 million of the 70 million shares sold went to big buy-and-hold mutual funds and institutional investors. So all the free float may simply be 20 million shares.

Another issue for short sellers of Twitter to factor in is that borrowing the stock could come with a huge premium. With such a low true free float, brokerage firms may charge 10% or maybe even higher on top of the normal margin rate. We have not heard of any additional borrowing premium as of yet but we have heard that shares eligible for short sale are scarce at best.

Oddly enough, no press release has been made about the settlement, nor about the overallotment option. This is odd, and something to consider. The long and short of the matter, no pun intended, is that Twitter’s eligibility for legal short sales may be highly subjective. The ability to short the stock may also fluctuate wildly from firm to firm.

Twitter will also become an index member of the Wilshire 5,000 after the close of trading on Friday.

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