Is short selling really banned?

[jimmygu3]

Re: Is short selling really banned?

Still wondering how this will impact inverse index funds. Experts?

[Jim Nickerson]

Re: Is short selling really banned?

Still wondering how this will impact inverse index funds. Experts?

With all the types of inverse funds that exist, do you want to narrow your question a bit?

Not that I'll necessarily attempt an answer and certainly will not provide an expert one if I try.

[mikedev10]

Re: Is short selling really banned?

is it really that dangerous to be short now or have puts? stuff trading should still be trading lower right? won't illiquidity push them to remove the ban? isn't the ban set to expire fairly soon? isn't this kind of creating a vacuum of suckage under these floating prices?

[grapejelly]

Re: Is short selling really banned?

the ban is a disaster and will beget further bans...at least for awhile. They are inconceivably stoopid.

[we_are_toast]

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.

Thanks for posting this:


I just found this on TDAMERITRADE:


"How do the temporary short selling rules on the 799 financial companies affect options trading?
Option traders will not be able to initiate opening transactions on the 799 companies that would lead to a net short equity position if exercised or assigned. Such positions opened prior to Friday, September 19 are not affected by the new short sale rules.
Examples of the rule's application on options trading:
•
Options-approved clients will still be able to buy to open and sell to close long puts, but they will not be able to exercise puts unless they are holding the underlying stock.
•
Selling uncovered (naked) calls is not allowed."

[GRG55]

Re: Is short selling really banned?

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.

OK, let's see. The SEC banned short selling financial stocks because it was afraid they might continue to go down and, well, "it must be the short sellers doing it, eh".

So let's see...

GS down nearly 7% today;
WFC down more than 11%;
WB down more than 11%;
JPM down more than 13%;
Bank of Countrywide (BAC) did comparatively well...it was down only 8.8%

That sure worked real well, didn't it...:rolleyes:

[jimmygu3]

Re: Is short selling really banned?

With all the types of inverse funds that exist, do you want to narrow your question a bit?

Not that I'll necessarily attempt an answer and certainly will not provide an expert one if I try.

See what I mean, honest and modest.

For example, I have a position in RYTPX (RYDEX INVERSE S&P 500 2X STRATEGY) and UCPIX (ULTRA SHORT SMALL CAP PRO FDS). Could these funds get boxed out by the new rules to the point where they can no longer function, or could frictional costs (as in JK's option pairs scenario) make the funds no longer able to truly inversely track the indices?

Thanks.

Jimmy

[Jim Nickerson]

Re: Is short selling really banned?

See what I mean, honest and modest.

For example, I have a position in RYTPX (RYDEX INVERSE S&P 500 2X STRATEGY) and UCPIX (ULTRA SHORT SMALL CAP PRO FDS). Could these funds get boxed out by the new rules to the point where they can no longer function, or could frictional costs (as in JK's option pairs scenario) make the funds no longer able to truly inversely track the indices?

Thanks.

Jimmy

Jimmy, I just read a note, probably you did too, by GRG recouping the losses today in a group of financial stocks that despite the no shorting rule took significant hits as did the major equity indices, especially the
RUT which should have given you good gains in your UCPIX, though not back to where it was last Wednesday, same fo RYTPX. I forget what the MSM said made the market go down today, but if it was oil, how about last week when they were going down and oil was cheaper. Most of the day to day commentary is useless chatter in my opinion.

I sort of have the impression that you are in these positions in hope of some enduring downtrend. That has been true since last Oct., if you got into them then, and I would consider it an excellent trade; whereas, I'd have to go back and count my ins and outs since last Oct. At some point the downtrend will end, and I have to assume we may be closer to that now than anytime in a year, and perhaps last Wednesday's closing prices will turn out to have been the bottom. Personally, I am out of any of these + or - 200% funds, because I have no strong opinion about what is happening right now or is to happen next, i.e. 75% cash.

I think it is reasonable that the lows of last week will get equaled or maybe even exceeded in a coming retest, and if that happens it could well happen between tomorrow and the end of October based on past seasonal behavior of when market lows not infrequently have occurred. I think a retest just a few days from the new lows last week is not all that likely, but certainly I don't know.

I think were I you, I would hang loose for a reversal up (again maybe that has begun) and be prepared to close the positions--in which case one is not hide-bound to immediately redeploy the proceeds. I don't sweat the slippage so clearly spelled out by jk. If you get into a trend early enough, there will be ups and downs, but the trend will be rewarding usually. You know too, you can take your profits on part of the position. Selling at exact tops and bottoms is nearly impossible.

[jimmygu3]

Re: Is short selling really banned?

Jimmy, I just read a note, probably you did too, by GRG recouping the losses today in a group of financial stocks that despite the no shorting rule took significant hits as did the major equity indices, especially the
RUT which should have given you good gains in your UCPIX, though not back to where it was last Wednesday, same fo RYTPX. I forget what the MSM said made the market go down today, but if it was oil, how about last week when they were going down and oil was cheaper. Most of the day to day commentary is useless chatter in my opinion.

I sort of have the impression that you are in these positions in hope of some enduring downtrend. That has been true since last Oct., if you got into them then, and I would consider it an excellent trade; whereas, I'd have to go back and count my ins and outs since last Oct. At some point the downtrend will end, and I have to assume we may be closer to that now than anytime in a year, and perhaps last Wednesday's closing prices will turn out to have been the bottom. Personally, I am out of any of these + or - 200% funds, because I have no strong opinion about what is happening right now or is to happen next, i.e. 75% cash.

I think it is reasonable that the lows of last week will get equaled or maybe even exceeded in a coming retest, and if that happens it could well happen between tomorrow and the end of October based on past seasonal behavior of when market lows not infrequently have occurred. I think a retest just a few days from the new lows last week is not all that likely, but certainly I don't know.

I think were I you, I would hang loose for a reversal up (again maybe that has begun) and be prepared to close the positions--in which case one is not hide-bound to immediately redeploy the proceeds. I don't sweat the slippage so clearly spelled out by jk. If you get into a trend early enough, there will be ups and downs, but the trend will be rewarding usually. You know too, you can take your profits on part of the position. Selling at exact tops and bottoms is nearly impossible.

Thanks, Jim. Yes, the funds were up 8-10% yesterday! I got into both immediately after EJ's DDBM call, on 12/31/07. I already had some inverse funds purchased in early '07 which I unloaded in 2/08 for a nice profit. I hold ~9% PM mining funds and have moved from 5% to 10% long in an Alt Energy fund, so the inverse funds hedge the equity exposure in those. I know I got in early to Alt Energy, but I believe that sector will outperform the broader market whether we continue up or down.