Submitted by LA_Renter on April 20, 2007 – 7:43pm.
TOO MANY SHORTS
Correct.
This is the first instance of wide spread options use coupled with a market that is likely to tank. Fund managers are hedging their firm’s bets by buying puts and not selling their equities. Presumably, they will buy shorts 6 months out and dump their equity after 3 months when its still close to the price today there by creating a crash and as that crash cascades and other holders sell at ever reducing prices … and when the individual investor realises its crashing its going to be too late … they have now got puts that are worth serious $$$.
You see, bad news from a company, sends its put prices soaring, but does nothing for the equity price. 3 months from now, large sell orders will trigger the equity price drop and the put values will go up.
Cool.
Cow_tipping.
