Ban on Short Selling

[Coronita]

[quote]I’m wiling to bet money the ban gets extended….Come on, especially without a signed bailout bill? Would the Fed and SEC be nuts?????

I’m wondering when they are going to announce a rates cut as a stopgap against this bailout bill. Oh wait, we’re not suppose to call it a bailout bill. It’s called something else other than the bailout bill.

Again, isn’t it interesting how much the Fed reaches into the market to prop it up?
[/quote]

told ya!…

This is getting way too predictable. I’m gonna try to milk the markets right now for all the policy biases/lop-sided regulation toward the markets for what it is right now. If this isn’t a carrot in the short term, I don’t know what is.

—

http://biz.yahoo.com/ap/081001/sec_short_selling.html

SEC extends short-sell ban for financials

WASHINGTON (AP) — Federal regulators on Wednesday extended an unprecedented ban against all short-selling in the shares of more than 800 financial companies, keeping it in place at least until after Congress enacts a massive financial bailout plan.

ADVERTISEMENT
The Securities and Exchange Commission announced the extension of the ban, which was put in on Sept. 18 in a bid to shore up investor confidence in the face of the spiraling market crisis.

The ban, which was to expire Thursday, now will last until the third business day after enactment of the $700 billion financial bailout plan now before Congress. It will end no later than Oct. 17.

Late Wednesday, the Senate passed the bailout plan, which appeared to be gaining ground in the House, where Republican’s opposition softened.

The idea is that the extension will give enough time for financial markets to calm, with bailout program’s plan to buy up Wall Street’s toxic mortgage debt possibly starting to have a positive effect. By law, the SEC’s emergency ban could not be extended beyond Oct. 17.

In the days since the ban took effect, the stock market has been on a rollercoaster ride. On Monday, the day the bailout plan was rejected in the House, the market shot downward and sent the Dow Jones industrials on a record 778-point plunge.

Short-sellers bet against a stock. The practice, which is legal and widely used on Wall Street, involves borrowing a company’s shares, selling them, and then buying them when the stock falls and returning them to the lender. The short-seller pockets the difference in price.

Although short selling can make markets more efficient and bring in more capital, regulators have maintained that it has widened the scope of the financial crisis and contributed to the collapsing values of investment- and commercial-bank stocks in particular.

The SEC “has taken steps during recent weeks to address concerns regarding short sales in light of the ongoing credit crisis,” the agency said in a statement issued Wednesday night. “The steps (the SEC) has taken are designed to ensure the continued smooth operation of orderly markets. Our actions have been taken in consultation with regulators of the major developed securities markets around the world, with whom we have coordinated in monitoring market reactions.”

[Anonymous]

There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.

QED. There is no “Ban” on short selling as long as the underlying options market is open and unrestricted.

[Anonymous]

There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.

QED. There is no “Ban” on short selling as long as the underlying options market is open and unrestricted.

[Anonymous]

There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.

QED. There is no “Ban” on short selling as long as the underlying options market is open and unrestricted.

[Anonymous]

There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.

QED. There is no “Ban” on short selling as long as the underlying options market is open and unrestricted.

[Anonymous]

There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.

QED. There is no “Ban” on short selling as long as the underlying options market is open and unrestricted.

[Coronita]

[quote=Colombo]There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.
[/quote]

I suppose that’s true for the small potato stock market player (except then you have to deal with the variability of option price premiums and expiration dates.) But assuming the small potato players aren’t the market movers, is this even feasible for say a hedge fund?

In those cases, it’s not just a few hundred puts and calls. Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Just curious.

[Coronita]

[quote=Colombo]There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.
[/quote]

I suppose that’s true for the small potato stock market player (except then you have to deal with the variability of option price premiums and expiration dates.) But assuming the small potato players aren’t the market movers, is this even feasible for say a hedge fund?

In those cases, it’s not just a few hundred puts and calls. Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Just curious.

[Coronita]

[quote=Colombo]There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.
[/quote]

I suppose that’s true for the small potato stock market player (except then you have to deal with the variability of option price premiums and expiration dates.) But assuming the small potato players aren’t the market movers, is this even feasible for say a hedge fund?

In those cases, it’s not just a few hundred puts and calls. Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Just curious.

[Coronita]

[quote=Colombo]There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.
[/quote]

I suppose that’s true for the small potato stock market player (except then you have to deal with the variability of option price premiums and expiration dates.) But assuming the small potato players aren’t the market movers, is this even feasible for say a hedge fund?

In those cases, it’s not just a few hundred puts and calls. Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Just curious.

[Coronita]

[quote=Colombo]There is no “Ban” on short selling as long as the underlying options market remains viable.

You want proof? OK, here goes. Synthetic stock ( a position which mirrors the profit-loss curve of the underlying security) is constructed by 1] purchasing an at-the-money call and 2]selling an at-the-money put on the stock in question.

If you can create a synthetic LONG position you can just as easily create a synthetic SHORT position by reversing the above trade, i.e., 1]purchase an at-the-money put and 2]sell an at-the money call on the same security.
[/quote]

I suppose that’s true for the small potato stock market player (except then you have to deal with the variability of option price premiums and expiration dates.) But assuming the small potato players aren’t the market movers, is this even feasible for say a hedge fund?

In those cases, it’s not just a few hundred puts and calls. Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Just curious.

[Anonymous]

Fat Lazy Union wrote:

Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Yes, they are called market makers. I believe this is a big part of why options volume has exploded during this current period of market volatility.

As you may recall, volatility is one of the 6 inputs into the Black-Scholes theorem of options pricing.

I suspect there are options traders right now licking their chops with the combination of increased volume and increased volatility. Just as the Vegas bookmakers thrive on an increased take, so too with options traders.

[Anonymous]

Fat Lazy Union wrote:

Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Yes, they are called market makers. I believe this is a big part of why options volume has exploded during this current period of market volatility.

As you may recall, volatility is one of the 6 inputs into the Black-Scholes theorem of options pricing.

I suspect there are options traders right now licking their chops with the combination of increased volume and increased volatility. Just as the Vegas bookmakers thrive on an increased take, so too with options traders.

[Anonymous]

Fat Lazy Union wrote:

Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Yes, they are called market makers. I believe this is a big part of why options volume has exploded during this current period of market volatility.

As you may recall, volatility is one of the 6 inputs into the Black-Scholes theorem of options pricing.

I suspect there are options traders right now licking their chops with the combination of increased volume and increased volatility. Just as the Vegas bookmakers thrive on an increased take, so too with options traders.

[Anonymous]

Fat Lazy Union wrote:

Would a hedge fund be able to find a market participant willing to reciprocate the transaction and find someone willing to sell all those puts?

Yes, they are called market makers. I believe this is a big part of why options volume has exploded during this current period of market volatility.

As you may recall, volatility is one of the 6 inputs into the Black-Scholes theorem of options pricing.

I suspect there are options traders right now licking their chops with the combination of increased volume and increased volatility. Just as the Vegas bookmakers thrive on an increased take, so too with options traders.

[Author]

Posts