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Short selling

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  • 19-09-2008 8:35am
    #1
    ifconfig
    Registered Users Posts: 880 ✭✭✭


    I've been listening and reading to the various business reports from US, UK and Ireland regarding clampdowns on short selling.

    The devil is in the details but ...

    Is it the case that in the USA they have clamped down specifically on
    "naked short selling" - ie. where the broker or fund hasn't borrowed to
    cover their position at the time of the sale and has to then borrow to
    cover. In the UK and Ireland have they outlawed (for a fixed period)
    short selling of *any* kind on

    a) the 4 main banks
    b) the entire ISEQ and FTSE indices respectively ?

    I just find that the reporting on this side of the pond is a little ambiguous.

    -ifc


Comments

  • Options
    #2
    damnyanks
    Registered Users Posts: 4,276 ✭✭✭damnyanks


    From what I've seen its just on the big 4


  • Options
    #3
    silverharp
    Registered Users Posts: 17,848 ✭✭✭✭silverharp


    great timing for options expiration today, the "house" wins again

    A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer



  • Options
    #4
    Flamed Diving
    Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    Ah, short-selling. The favourite scapegoat during financial crises.


  • Options
    #5
    xOxSinéadxOx
    Registered Users Posts: 2,604 ✭✭✭xOxSinéadxOx


    anyone like to explain to me what short-selling is?


  • Options
    #6
    Minder
    Registered Users Posts: 2,774 ✭✭✭Minder


    xOxSinéadxOx wrote: »
    anyone like to explain to me what short-selling is?

    Borrowing shares and selling them in the hope that the price will drop - if it does, i buy them back for less than i sold them, return them to the lender and pocket the difference - a profit for me. If i get it wrong and the shares increase in value, i have to pay more for them then i sold them at and i make a loss.

    Why would someone lend shares? A fee and the hope that the shares will increase in value in the long term despite my short sale.

    Usually in buying or selling shares, there is an exchange of paperwork that tracks the transaction - contract notes, share certificates etc. Short selling is open to abuse when the paperwork doesn't follow the transaction, leading to situations where more shares are sold short than actually are listed for a company.


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  • Options
    #7
    SoCal90046
    Closed Accounts Posts: 192 ✭✭SoCal90046


    xOxSinéadxOx wrote: »
    anyone like to explain to me what short-selling is?

    It's selling something you don't own. I know it sounds weird, but every time you are running to the shop and someone gives you money to buy something, that's essentially a short sale. Of course, you buy the milk/bread/coffee at the shop and the "sale" is covered. If they're out of the product, you just give the money back, but that's essentially a short sale: you sell something you don't own. Farmers do it when they sell calves that aren't yet born; they also sell corn that's not yet grown. Short selling is really quite common if you think about it.

    It sounds like a strange concept when you first hear it, but variations on the theme of short selling happen all the time.


  • Options
    #8
    Mikel
    Closed Accounts Posts: 863 ✭✭✭Mikel


    silverharp wrote: »
    great timing for options expiration today, the "house" wins again
    how do you figure that.
    looking at the markets now it looks like shorts weren't the problem after all


  • Options
    #9
    silverharp
    Registered Users Posts: 17,848 ✭✭✭✭silverharp


    Mikel wrote: »
    how do you figure that.
    looking at the markets now it looks like shorts weren't the problem after all

    it was something I was looking for to happen. The option sellers "The House" would have lost billions if the S/P for instance had stayed below 1200/1150, ie investors had hedged their portfolios by buying options. So any clever trader should have been expecting a news event to rally the market into Friday. So what happened was that the options expired worthless and the house keeps the premiums.

    A belief in gender identity involves a level of faith as there is nothing tangible to prove its existence which, as something divorced from the physical body, is similar to the idea of a soul. - Colette Colfer



  • Options
    #10
    Mikel
    Closed Accounts Posts: 863 ✭✭✭Mikel


    silverharp wrote: »
    it was something I was looking for to happen. The option sellers "The House" would have lost billions if the S/P for instance had stayed below 1200/1150, ie investors had hedged their portfolios by buying options. So any clever trader should have been expecting a news event to rally the market into Friday. So what happened was that the options expired worthless and the house keeps the premiums.
    I'm afraid you don't understand options.

    There is no 'House' selling options
    A bank that sells puts on a stock doesn't sit back and hope to keep the premium.
    They hedge by selling the underlying which means they were short the stocks which then rallied.


  • Options
    #11
    SoCal90046
    Closed Accounts Posts: 192 ✭✭SoCal90046


    Mikel wrote: »
    how do you figure that.
    looking at the markets now it looks like shorts weren't the problem after all

    My read was if there was short covering on Friday, then those long in call options would be at an advantage


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