At least if the Wall Street Journal is to be believed, the short sale ban will be extended for at least a week or two after the original October 2nd sunset date. Doubtless the incredible success of the plan (see attached chart after the jump), put into place on September 19th, and its immense popularity with market participants are the central influences spurring its renewal. Said the SEC at the time:
Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets. At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation. Financial institutions are particularly vulnerable to this crisis of confidence and panic selling because they depend on the confidence of their trading counterparties in the conduct of their core business.
As we pointed out earlier today, Taiwan got in on the act and banned short selling outright. I don't know about the rest of you, but I am really enjoying my new found equilibrium based on the "true price valuation" of high leveraged financial institutions that feel no downward price pressure except that of their own bloated balance sheets.
Don't Blame Short Selling [Wall Street Journal]
Related: DealBreaker Swag
Posted by guest , Sep 30, 2008 5:42PM
i will be watching the day the short sell ban is lifted... today's market boost will be completely wiped away and then some
Posted by guest , Sep 30, 2008 5:44PM
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&ssPageName=STRK:MESELX:IT&item=320306090254#ht_1437wt_0
Posted by guest , Sep 30, 2008 5:49PM
The ban on short selling seems to be working fine to me - no shortage of liquidity, prices going up and down (like they should) based on fundamentals as opposed to concerted shorting, breathing room for financials to recapitalize (or sell themselves) in an orderly way.
All the criticisms of the no-shorting: loss of liquidity, loss of rebound rallies, that it was an attempt to manage prices up (which was nonsense to begin with, you can have price discovery off of longs entering and exiting too), seem to not be holding water. All we have lost is manic movements without reason.
Posted by guest , Sep 30, 2008 5:52PM
no one says you cannot sell your shares - you just cannot sell shares you don't own or, better yet, shares that don't exist, all while spreading bullshit lies in a coordinated and fucking illegal attempt to manipulate the market.
Posted by guest , Sep 30, 2008 5:54PM
Don't you know the pols always need an enemy to cover up their failure?
First WMD's, then muslims [I'm not one], now the short sellers... YOU could be next when you try to sell your mutual funds in your 401k!
Posted by guest , Sep 30, 2008 5:54PM
Ben Bernanke responds to my e-mail calling the bailout a travesty.
Dear Mr. X:
Thank you for your thoughtful correspondence to Chairman Bernanke and for your suggestions for relieving the current strains on the U.S. financial system. Healthy economic growth depends on well-functioning financial markets. Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve. Again, we thank you for sharing your ideas. Please be assured that the Federal Reserve is working diligently to find and implement the best and most sustainable solutions to the current economic challenges.
Sincerely,
JPDBoard Staff
Posted by guest , Sep 30, 2008 5:58PM
@#1...
That's why the ban won't be lifted soon, genius.
We need the uptick rule back too. Don't think it won't happen either.
The "Mark to Market" is being lifted, isn't it? Most of you clowns said it wouldn't be as you laughed about the possibility.
More and more Wall St is starting to resemble a real Christmas Tree. Dead the moment it's cut; it just doesn't know it for a few months.
The Guy from Delaware
Posted by guest , Sep 30, 2008 6:03PM
Dear Mr. X:
Thanks for sharing. Now, that I know we are in good hands, I can sleep well again! I trust that my 401k still will be there when I need it and my home will go up at 15% pa, so I can enjoy my retirement.
Moreover, I don't have to worry that those McMansions in Greenwich and the Hamptons will be inhibited by some lowly rhodents, when vacated.
Posted by guest , Sep 30, 2008 6:08PM
@#8...
Hahaha!!! And then Bridgehampton will change its name to Brohampton after the owners vacate and the homeless vagrants move in. Hahaha!!!
The Guy from Delaware
Posted by guest , Sep 30, 2008 6:13PM
@9 Brohug from ya boy!
Posted by guest , Sep 30, 2008 6:13PM
@3: Guess you haven't looked at option spreads recently, eh?
Posted by guest , Sep 30, 2008 6:15PM
Bring back the uptick
Posted by guest , Sep 30, 2008 6:18PM
Yes, we need a new uptick rule. Real estate can only change hands on an uptick. I also want a bonus uptick rule. My bonus can only be changed on an uptick.
Posted by guest , Sep 30, 2008 6:23PM
@12
Uptics don't make upticks on the lost capital that was dabbled away for fat boni.
Posted by guest , Sep 30, 2008 6:30PM
Equity Private:
Lets not be silly here while you can't directly short, you just construct or synthetic short with the options. or if that's too obvious two positions who's net delta is -2 or three positions or whatever the hell you want. The ban was over as soon they exempted the market makers... and if they try include the market makers again the they'll actually create more failures in the finance industry than ban its self is designed to prevent. ... which doesn't necessarily mean they're not too stupid to try it.
Next you'll be telling us that you want replicate the return of the S&P 500 without owning all 500 companies.
Posted by guest , Sep 30, 2008 6:30PM
Everyone is describing these "financial instruments" as though they were nuclear waste. Why don't they just dig a whole, next to the nuclear waste, and just leave it there and forget about it and move on?
Posted by guest , Sep 30, 2008 7:20PM
@15:
How do long-short players put on relative value trades with no definitive time horizon for the trade?
Are you saying it's still possible to
have a position like via synthetics where
delta = -1; vega = 0; theta = 0; rho = 0;
Posted by guest , Sep 30, 2008 7:20PM
doe anybody know anything about the DTCC? The mystery bank with 20+Trillion of our money, and the owner of all our securities?
http://yourmortgageoryourlife.wordpress.com/2008/09/30/who-really-owns-your-money-part-one-the-depository-trust-clearing-corporation/
This whole thing is a big set up!
Posted by guest , Sep 30, 2008 7:51PM
@15 options don't even trade on some of the most illiquid stocks. The spreads on those have widened dramatically, the price moves have become more erratic and the liquidity is all but gone. For stocks that are banned but for which options trade, the cost of shorting jumped pretty dramatically.
I'll give you this, though. This thing has created a lot of economic rents for market makers. To the geniuses suggesting a return of the uptick rule: If they bring back the uptick rule, it'll create more rents for market makers. It'll make exactly no difference at all in the liquid stocks. Only an idiot listening to the floor brokers constantly interviewed on CNBC and Fox who are missing those rents and who hasn't read the research would suggest something so stupid.
How about a downtick rule for buying. Better yet, get rid of markets altogether.
Posted by guest , Sep 30, 2008 8:03PM
@3 "All we have lost is manic movements without reason."
So down 777 and up 485 in two days. You kidding right?
Posted by guest , Sep 30, 2008 8:07PM
EP -
I say this not as a jab, but rather as an honest inquiry:
Do you still have a job, or is this blogging thing a FT gig now?
Posted by StupidEquityGuy , Sep 30, 2008 8:22PM
@20, I could not decide if they were an idiot or I was just extra stupid...
It is most likely an example of someone who does not realize they have placed mental blinders on... They need an enemy, a target for their rage... in this case "Shorts" is the perfect target of their misguided mental rage.
Who cares if the market just moved the most points in two days in history with muted short action...
It's a rational market now because the bad guys (professional shorts) are not allowed to offer price discovery, verses back when the shorts where gang-banging the market and volatility was repressed.
Reality, is mark to myth...
~SEG
Posted by guest , Sep 30, 2008 8:28PM
@19 & 17:
Well i think shorting is pretty stupid but yes sort of. I don't know why you would ever want to be delta= -1 or delta =1 and i don't know why you wouldn't want to be theta=0 why not theta= abs(delta)... maybe this is what you mean? The wide bid ask spread is actually an advantage if you think about it, means every option is mis priced with respect to the others but they don't have the same bid/ask. Therefore bid ask can be arbitraged.
19:
why would you short illiquid stocks? sounds like something that isn't going to turn out to well for you in the long run.
Posted by guest , Sep 30, 2008 8:53PM
@23
Please elab how you arbitrage a wide bid-ask without ability to short the underlying because i smell bs
Posted by guest , Sep 30, 2008 9:07PM
@17
I'm with you now. Shorting isn't vega=0 in the first place. and i don't know why you would ever want to be vega=0 the whole reason to buy securities is that you think the price is going to change. if vega=0 then what's the point? The real goal should be path independence while being long as much vega as possible . such that you only lose money if realized cumulative instantaneous vega is zero
Posted by guest , Sep 30, 2008 9:42PM
Well 24:
first of all can still exercise the options even a put, you just need to buy 100 shares to hedge your delta between the time you exercise and settlement.
second, what do you think a butterfly is?
Posted by guest , Sep 30, 2008 9:58PM
So we elemented the shorts to give the financials breathing room - right.
Short selling allowed - BSC, Fannie and Freddie die. No short selling allowed, AIG, WM and WB die. And MER is sold. GS ans MS became banks and recaptialized
We are done 500 up 500, down 777 up 500, down these are not normal markets.
The ability of regular investors to hedge their positions have been severly imparied - see convertiable debenture market.
The short seller has become the scapegoat for the market going down or financials going tu. But in the absence of short sellers the market has hit all time lows and financial insitutions are still going tu.
One must ask if perhaps the shortsellers were silenced because the were telling the truth about these financial institutions (look these institutions are about to recieve $700B of your tax dollars - do you think they would be getting that money if the only problem with them was the short sellers).
Short sellers are the market dissenters in the market. In order for a democratic captial markets to work we need dissent. If an opinion cannot be challanged how much is that opinion worth?
Posted by guest , Sep 30, 2008 10:14PM
@26
"The wide bid ask spread is actually an advantage if you think about it, means every option is mis priced with respect to the others but they don't have the same bid/ask. Therefore bid ask can be arbitraged."
But again, and not to belabor the point: Specific example on how you could arb a wide bid ask without shortselling.
Posted by guest , Sep 30, 2008 11:43PM
@28 man, i feel like i'm given away the whole store over here.
forward and reverse convert the put and call who's net proceeds are equal to the price of the atm straddle twice the price of the atm straddle take the proceeds and buy the atm straddle. iterate until retired, ignore the ask price all together.
Posted by Anal_yst , Oct 01, 2008 12:05AM
@ 29 (and thread)
Interesting, although somehow I feel that for many investors this is largely easier said than done
Posted by StupidEquityGuy , Oct 01, 2008 12:06AM
@29, WTF is that called? An Iron Butterfly Death Condor?... don't bother trying to explain it deeper, I am pretty sure I will not be able to grasp it in a form that works my approach...
I am too stupid to follow that strategy with any chance of luck on my side.
Thank you for sharing with us the wackiest sounding, but I am sure it works... option trade...
~SEG
Posted by guest , Oct 01, 2008 12:35AM
@31 Yeah dudes that's my gift to you, I call it the SuperFly or alternatively my VIX in a Bocks.
separately be careful the SEC does have to the right invalidate any option contract at will you know so you're only one government cluster fuck from being short a shit load of gamma.
~Rnd(Bnkr)
Posted by StupidEquityGuy , Oct 01, 2008 1:25AM
@32,
I have exited every single "Short Volatility" type trade in the portfolio. I have zero open shorts. Zero short vol. Zero open margin positions. Nadda...
I have gone to a pure long unleveraged approach with 20-40% in cash. I am holding baskets of long puts and long calls... I have direct ETFs for sectors swings and currency swings or leveraged options trades on them. I swear I am a long vol market maker now.
I am pondering removing all of my individual stock risk at this stage due to the reality that the sectors are moving enough, why embrace the single stock risk event into the portfolio.
What I have noticed, is that to stay ahead of the game, I have had to change every single hard rule I have had drilled into my head before this adventure started. This market is about being a Phoenix and somehow rising from the ashes.
Best to you and yours,
~SEG
Still green MTD & YTD... but wow was today an ass kicker for some reason.
Posted by guest , Oct 01, 2008 2:18AM
@SEG:
Yes, I once believed in efficient markets and valuation based on discounted cash flow. This does not work as anything besides a thought experiment. I am with you entirely my net exposure is $0. My basic investment approach is that there is no such thing as valuation and therefore the current price is most certainly wrong. I think i'm going to move my account over to OptionsHouse they have lowest transaction cost in the business it seems and they are also market makers so you have some access to their order flow.
I simply go out and look for the most complicated hardest to value companies i can find hopefully in some sort of incredibly difficult predicament from which they will either enter the death spiral or either be resurrected some how. Then I lever up and get long vol.
As you noted you may have appeared to be
"down" big today however since you are arbing the market makers themselves you should expect to be "down" at all times. If you ever have a NET unrealized gain its means that you are unhedged and the value of those gains will be lost if the market reverses direction. A more accurate measure of performance is your cash balance plus 1/2 the market value of the portfolio (assuming you are properly hedged).
Honestly this is a once in a life time reallocation of capital and I just try to make sure that I am in a position to scoop up as much as possible before goldman figures out away to suck it into 85 broad.
Posted by guest , Oct 01, 2008 4:17AM
@29
How do you "buy the atm straddle" when you "ignore the ask price all together"?
Or to the basics:
How can you even do buttefly (iron or otherwise) when you ignore the ask price?
That's the point the other person was trying to make. The spread is so wide that butterfly strategies are now impaired.
Posted by guest , Oct 01, 2008 4:22AM
@34
That's the biggest bunch of bullshit I have ever read.
Posted by guest , Oct 01, 2008 5:33AM
@35
theoretically net net that portfolio should be precisely worthless . but because you bake in the *ASK* price of the ATM straddle when you originally position the options any increase in the net value of options is the result of the deviation of portfolios weighted average realized volatility from IV as time goes to expiration all deviations in volatility are captured by the net price changes. of course there're better ways to approach the problem... but you know he asked for an example
@36 yeah its probably wrong... you should ignore it, discrete intervals with stochastic volatility should be sufficient, I mean that's what they use over at Bear...er Lehman... er Merrill.... never mind.
Posted by guest , Oct 01, 2008 7:59AM
To the people who noted the market being down 777/up 485 as proof of anything having to do with short selling, you may have missed that whole vote on the Paulson plan and attempt to resuscitate it. The financials are down because of newsflow, not because of the short ban. People arguing the short ban was supposed to prevent financials from going down, and as they have gone down, it hasn't worked, are missing the whole point. The fact financials are going down indicates they are responding to news and that you can have price discovery in a market without shorts.
And as to wide option spreads, I care why?
Posted by guest , Oct 01, 2008 9:25AM
all your theories,re: short selling, greeks,vol, etc will serve you well on the unemployment line.
50% of you will be driving taxis in the next 12 months.
LOL!!!!
Posted by guest , Oct 01, 2008 10:48AM
@23
Because they may be overvalued. I'm not going to draw a trading strategy for you, but suffice to say that without shorting, they can jump 10% on the day and crash right back down because market makers have no competition. They're already inefficient, so sucking more liquidity out of them makes them even less so. Why would you want to do that.
WRT options premiums - what makes you think that the premiums are mispriced. If that's the only way you can short, then you're going to pay up. More rents for the options market maker but a lower options implied stock price for you. Even when you can short normally, the market in vol can be so wide (in options) that it destroys all your edge in a long/short trade. So, you won't do that trade at all if you have to use options. It's important to remember that a lot of shorting is for hedging purposes.