Is short selling really banned?

[jk]

it is my understanding that market makers in options are being exempted from the ban because of their need to hedge. otherwise, there will be no options market. so do a synthetic - sell a call and buy a put with the same strike price. voila - you're short.

[*T*]

Re: is there really a short selling ban?

An expensive way to do it though, as I imagine the spread on options those names where normal punters cannot short would be wide.
I agree that the authorities probably didn't think further than - ooh - 24 hrs, so there are doubtless loopholes.

[we_are_toast]

Re: is there really a short selling ban?

it is my understanding that market makers in options are being exempted from the ban because of their need to hedge. otherwise, there will be no options market. so do a synthetic - sell a call and buy a put with the same strike price. voila - you're short.

I think you might be double short. Selling a call OR buying a put would give you an equivalent short position.

But the options market shouldn't have an effect on the stock price unless the options are exercised or hedged. If they're exercised, someone is probably going to have to buy stock to deliver, which would be a positive for the stock price.

Since I'm guessing this bail-out is going to start looking real ugly, I loaded up on puts on some of the financials, so I'm glad they decided to let the option market be.

[jk]

Re: is there really a short selling ban?

An expensive way to do it though, as I imagine the spread on options those names where normal punters cannot short would be wide.
I agree that the authorities probably didn't think further than - ooh - 24 hrs, so there are doubtless loopholes.

actually the premia will cancel out. the costs are the transaction costs and 2 spreads.

[jk]

Re: is there really a short selling ban?

I think you might be double short. Selling a call OR buying a put would give you an equivalent short position.

wrong. do the math.

But the options market shouldn't have an effect on the stock price unless the options are exercised or hedged.

the options market makers are always hedging their exposures in the equity markets. same thing for futures- exposures are hedged. otherwise the players will arbitrage the spreads to close any discrepancies.

[we_are_toast]

Re: Is short selling really banned?

The Math;

Sell a call ---- Stock price goes down (you make money) price goes up you loose.

Buy a put ---- Stock price goes down (you make money) price goes up you loose.

2 bets price going down = 2 shorts?

JK, I'm not an options expert, so if I'm misunderstanding this please help me out.

[jk]

Re: Is short selling really banned?

The Math;

Sell a call ---- Stock price goes down (you make money) price goes up you loose.

Buy a put ---- Stock price goes down (you make money) price goes up you loose.

2 bets price going down = 2 shorts?

JK, I'm not an options expert, so if I'm misunderstanding this please help me out.

say stock is at 10. sell a call, buy a put with strike price 10. premia will cancel except for commisions and spreads. let's say you hold to expiration. stock goes to 11. your short call has value -1. your put expires worthless. so if the price goes up 1, you lose 1. let's say the stock goes to 8. your put has value +2, your short call expires worthless. so if the stock goes down 2, you make 2. i.e short call + long put = short position. qed.

[*T*]

Re: is there really a short selling ban?

What? Read what I said:

the spread on options ... would be wide.

I do understand put-call parity. I used to market make options at a US bank.

[GRG55]

Re: Is short selling really banned?

30 more companies added this morning, including GE, GM, Moody's and the Canadian banks [the one's that are supposed to be in so much better shape than their US counterparts...:rolleyes: ]. I suspect the foreign banks were added because they are now included in the Super SIV bailout.

Read it and weep...

NYSE-Listed Companies Added to the List as of Monday Morning, Sept. 22, 2008
Please be advised that, effective immediately, the SEC has revised its temporary emergency action with respect to the Order prohibiting short selling in financial firms. As there are material differences in the application of the prohibition, you should read the new SEC order, which can be found at: http://www.sec.gov/news/press/2008/2008-218.htm. The SEC has informed us that all companies that were covered by Friday’s order will also be covered by the newly revised short sale prohibition. The SEC has delegated to each national securities exchange the authority to identify additional listed companies that qualify for inclusion in the list of companies covered by the revised prohibition. The additional companies must be in one of the following categories:

Banks, as defined in 15 U.S.C. 78c(a)(6), Savings associations, as defined in 15 U.S.C. 78c(a)(46),
Registered brokers or dealers, as defined in 15 U.S.C. 78c(a)(48), Insurance companies, as defined in 15 U.S.C. 80a-2(a)(17), Banks, savings associations, brokers, dealers and insurance companies that are similar to those covered by the foregoing statutory definitions but which are regulated by a foreign (rather than U.S.) regulatory authority, US and foreign investment advisors, both registered and unregistered, Companies that control or have majority ownership of companies that meet one of the above criteria.
According to the SEC, companies that were on the original list attached to Friday’s Order, or that fall into one of the categories expected to be covered by the new order, may opt out of the application of the revised short sale prohibition by informing the NYSE of that determination. The list of additional NYSE-listed financial firms that meet the revised criteria follows. This list is subject to amendment, and we will notify you of any changes in subsequent notices. We hope that this correspondence will assist you in preparing your systems prior to the opening of trading today.


NYSE-Listed Companies Added to the List as of Monday Morning, Sept. 22, 2008

1. GLG GLG Partners, Inc.
2. GE General Electric Co.
3. OCN Ocwen Financial Corporation
4. KBW KBW, Inc.
5. GFG Guaranty Financial Group Inc.
6. MFG Mizuho Financial Group, Inc.
7. FMR First Mercury Financial Corporation
8. STC Stewart Information Services Corporation
9. FCF First Commonwealth Financial Corporation
10. MTB M&T Bank Corporation
11. DFS Discover Financial Services
12. BMO Bank of Montreal
13. TD Toronto Dominion Bank
14. CM Canadian Imperial Bank of Commerce
15. FMD The First Marblehead Corporation
16. BBV Banco Bilbao Vizcaya SA
17. CIB BanColombia SA
18. LM Legg Mason, Inc.
19. NFP National Financial Partners Corp.
20. AXP American Express Company
21. CIT CIT Group Inc.
22. GM General Motors Corporation
23. HIG The Hartford Financial Services Group
24. ADS Alliance Data Systems Corporation
25. ALD Allied Capital Corporation
26. RAS RAIT Financial Trust
27. DRL Doral Financial Corporation
28. FSR Flagstone Reinsurance Holdings
29. MCO Moody's Corporation
30. COF Capital One Financial Corporation
31. CS Credit Suisse Group AG

[jimmygu3]

Re: Is short selling really banned?

30 more companies added this morning, including GE, GM, Moody's and the Canadian banks [the one's that are supposed to be in so much better shape than their US counterparts...:rolleyes: ]. I suspect the foreign banks were added because they are now included in the Super SIV bailout.

Read it and weep...

NYSE-Listed Companies Added to the List as of Monday Morning, Sept. 22, 2008
Please be advised that, effective immediately, the SEC has revised its temporary emergency action with respect to the Order prohibiting short selling in financial firms. As there are material differences in the application of the prohibition, you should read the new SEC order, which can be found at: http://www.sec.gov/news/press/2008/2008-218.htm. The SEC has informed us that all companies that were covered by Friday’s order will also be covered by the newly revised short sale prohibition. The SEC has delegated to each national securities exchange the authority to identify additional listed companies that qualify for inclusion in the list of companies covered by the revised prohibition. The additional companies must be in one of the following categories:

Banks, as defined in 15 U.S.C. 78c(a)(6), Savings associations, as defined in 15 U.S.C. 78c(a)(46),
Registered brokers or dealers, as defined in 15 U.S.C. 78c(a)(48), Insurance companies, as defined in 15 U.S.C. 80a-2(a)(17), Banks, savings associations, brokers, dealers and insurance companies that are similar to those covered by the foregoing statutory definitions but which are regulated by a foreign (rather than U.S.) regulatory authority, US and foreign investment advisors, both registered and unregistered, Companies that control or have majority ownership of companies that meet one of the above criteria.
According to the SEC, companies that were on the original list attached to Friday’s Order, or that fall into one of the categories expected to be covered by the new order, may opt out of the application of the revised short sale prohibition by informing the NYSE of that determination. The list of additional NYSE-listed financial firms that meet the revised criteria follows. This list is subject to amendment, and we will notify you of any changes in subsequent notices. We hope that this correspondence will assist you in preparing your systems prior to the opening of trading today.


NYSE-Listed Companies Added to the List as of Monday Morning, Sept. 22, 2008

1. GLG GLG Partners, Inc.
2. GE General Electric Co.
3. OCN Ocwen Financial Corporation
4. KBW KBW, Inc.
5. GFG Guaranty Financial Group Inc.
6. MFG Mizuho Financial Group, Inc.
7. FMR First Mercury Financial Corporation
8. STC Stewart Information Services Corporation
9. FCF First Commonwealth Financial Corporation
10. MTB M&T Bank Corporation
11. DFS Discover Financial Services
12. BMO Bank of Montreal
13. TD Toronto Dominion Bank
14. CM Canadian Imperial Bank of Commerce
15. FMD The First Marblehead Corporation
16. BBV Banco Bilbao Vizcaya SA
17. CIB BanColombia SA
18. LM Legg Mason, Inc.
19. NFP National Financial Partners Corp.
20. AXP American Express Company
21. CIT CIT Group Inc.
22. GM General Motors Corporation
23. HIG The Hartford Financial Services Group
24. ADS Alliance Data Systems Corporation
25. ALD Allied Capital Corporation
26. RAS RAIT Financial Trust
27. DRL Doral Financial Corporation
28. FSR Flagstone Reinsurance Holdings
29. MCO Moody's Corporation
30. COF Capital One Financial Corporation
31. CS Credit Suisse Group AG

Question for you experts like jk & GRG55:

1) Isn't this a list of crappy stocks? I mean if they have to outlaw shorting a stock isn't it sort of exposing the company as being in poor financial condition?

2) If one owns any of these stocks currently, would it be a wise time to exit, as the pool of sellers is greatly diminished (limited to current stockholders rather than shorts)?

Thanks!

Jimmy

[GRG55]

Re: Is short selling really banned?

Question for you experts like jk & GRG55:

1) Isn't this a list of crappy stocks? I mean if they have to outlaw shorting a stock isn't it sort of exposing the company as being in poor financial condition?

2) If one owns any of these stocks currently, would it be a wise time to exit, as the pool of sellers is greatly diminished (limited to current stockholders rather than shorts)?

Thanks!

Jimmy

The list of additions is pretty well all financial sector companies, or financials-in-drag (like GE and GM). If anyone here is still holding any of these companies they simply have not been paying any attention to what's been discussed at length on iTulip.

As to whether these are crappy companies or not, how can anyone really tell. The creative accounting games that financials are allowed to play with their income statements and balance sheets are quite incredible, so there is no way for any investor to properly assess how sound any of these companies are. An example is the earnings increases they can book when their own bonds are downgraded; and we've seen quite a bit of that lately. How is it possible for GE to have "beat" earnings estimates by exactly one cent, quarter after quarter after quarter through most of Jack Welch's reign? Manipulating the accounts of GE Capital to get the "right" overall answer. No true industrial company can predict its business that accurately.

And this is ultimately the reason the SEC had to ban short selling for ONLY the financials...as long as the accounting statements of these companies are suspect [and that fact is now widely understood] there is no way of assuring anyone would want to buy the stock at any price as long as the shorts were driving them down [this is a key issue that those who argue against the short selling ban fail to point out]. In other companies in other industries, where the accounting statements can be dissected and understood, at some point buyers will come in because the stock has been driven to below it's intrinsic value. I can, for example, determine what I think the value of an oil and gas company might be, and how much I may be willing to pay to buy a share of its reserves and production. The banks have no intrinsic value that can be determined with any assurance (what the hell is the value of Tier 1, 2 or 3 assets anyway???)

As for exiting, I think jk's advice on another post is appropriate. If you did not own the stock today, would you buy it at this price? If your answer is "yes", then continue to hold what you have. If the answer is "no", then maybe one should consider selling now.

[jk]

Re: is there really a short selling ban?

What? Read what I said:
I do understand put-call parity. I used to market make options at a US bank.

i wasn't addressing your comment but the question from toast. you're absolutely right, of course, the spreads make it expensive, but you're able to short if you really want to.

here's another thought- buy a nearby expiration deep in the money put, which will be exercised at expiration. at least that's how it would have been handled in the past. anyone know what's the score now?

[jimmygu3]

Re: Is short selling really banned?

The list of additions is pretty well all financial sector companies, or financials-in-drag (like GE and GM). If anyone here is still holding any of these companies they simply have not been paying any attention to what's been discussed at length on iTulip.

As to whether these are crappy companies or not, how can anyone really tell. The creative accounting games that financials are allowed to play with their income statements and balance sheets are quite incredible, so there is no way for any investor to properly assess how sound any of these companies are. An example is the earnings increases they can book when their own bonds are downgraded; and we've seen quite a bit of that lately. How is it possible for GE to have "beat" earnings estimates by exactly one cent, quarter after quarter after quarter through most of Jack Welch's reign? Manipulating the accounts of GE Capital to get the "right" overall answer. No true industrial company can predict its business that accurately.

And this is ultimately the reason the SEC had to ban short selling for ONLY the financials...as long as the accounting statements of these companies are suspect [and that fact is now widely understood] there is no way of assuring anyone would want to buy the stock at any price as long as the shorts were driving them down [this is a key issue that those who argue against the short selling ban fail to point out]. In other companies in other industries, where the accounting statements can be dissected and understood, at some point buyers will come in because the stock has been driven to below it's intrinsic value. I can, for example, determine what I think the value of an oil and gas company might be, and how much I may be willing to pay to buy a share of its reserves and production. The banks have no intrinsic value that can be determined with any assurance (what the hell is the value of Tier 1, 2 or 3 assets anyway???)

As for exiting, I think jk's advice on another post is appropriate. If you did not own the stock today, would you buy it at this price? If your answer is "yes", then continue to hold what you have. If the answer is "no", then maybe one should consider selling now.

Thanks. I have no financials and very few long stocks, but my mom has a good bit tied up in preferred stocks of several financials. I have been trying to encourage her to sell over the last year, but the financial advisor she has worked with for years insists that riding it out is the right thing (the yields just keep getting better!). I'm trying to decide how hard I should push her to cut her losses. I'd dump them in a heartbeat but it's not my decision.

Jimmy

[we_are_toast]

Re: is there really a short selling ban?

i wasn't addressing your comment but the question from toast. you're absolutely right, of course, the spreads make it expensive, but you're able to short if you really want to.

here's another thought- buy a nearby expiration deep in the money put, which will be exercised at expiration. at least that's how it would have been handled in the past. anyone know what's the score now?

It took me awhile to see that in your 1st post you were writing the call to cancel the premium on the put. In the past I've always done what you suggest in this post. If I want to get close to a real leveraged short, I'll buy a deep in the money put in a nearby month. But I never exercise. If I'm approaching the expiration date and am convinced I'm still right, I'll roll it over, otherwise sell it and take my loss.

[jk]

Re: Is short selling really banned?

from schwab:

When placing trades to open an uncovered long put or short call on any of the securities restricted from being sold short by the SEC's emergency order, please be aware that it is your responsibility to close uncovered long put or short call positions before they create a short equity position through exercise. Orders are subject to review. You are responsible for any financial impact in complying with this emergency order.