Anyone with clarity on the affect of the SEC ruling on options?

Discussion in 'Options' started by Cutten, Sep 19, 2008.

  1. I've gone through the text of their ruling this morning, I didn't see anything that prevented placing options trades. However there are opinions going round that they may be classified as prohibited - anyone got any clear info or opinion on this?

    Also do the shorting prohibitions apply to pre-existing options positions that were exercised into shorts before today?
     
  2. Short DITM calls might replicate short stock positions effectively...

    Is this all a moot point?
     
  3. JSHINV

    JSHINV

    My question too. I am sorry I am lazy. I'd just rather ask someone who read the order, than read the thing. I am not interested in shorting financials - for me the time to short financials is over. But, I am interested, just for curiosity, does the order prohibit synthetic shorts? For example selling Citibank 5 Oct 08 calls at 20 and buying 5 Oct 08 Puts at 20, you've got the synthetic equivalent of 500 short C shares at market. This has probably been covered a 100 times on ET already. I aplogize in advance for this redundant question.

    I did find out that they've included in the ban shorting single stock futures. I don't do single stock futures, but went to One Chicago's web site and they disclosed short SSFs are included in the ban for the prohibitied stocks.
     
  4. HOBO

    HOBO

    JSHINV,

    According to One Chicago website, TRADING of SSF is NOT affected:

    Additional Notice to Members
    As further clarification regarding the SEC’s Emergency Order restricting short sales, please note that there are no restrictions on trading SSFs on OneChicago and that members may buy and sell in the ordinary course throughout the SEC’s order that expires on October 2, 2008, unless further extended. If you have any questions please contact OneChicago’s General Counsel Donald Horwitz, dhorwitz@onechicago.com or 312-424-8519.

    http://www.onechicago.com/?p=1117


    But the problem is market makers cannot hedge by shorting stocks. So there is a recommendation to the commission to exempt them:

    Further SEC Statement regarding Short Sale Order:
    Statement of SEC Division of Trading and Markets
    FOR IMMEDIATE RELEASE
    2008-213
    Washington, D.C., Sept. 19, 2008 — The Securities and Exchange Commission’s Division of Trading and Markets today issued the following statement:
    “The Commission staff is recommending to the Commission a modification to its order prohibiting short selling in securities of specified financial firms. This modification would extend, for the life of the order, the exemption for hedging activities by exchange and over-the-counter market makers in derivatives on the securities covered by the order.”

    http://www.onechicago.com/?p=1118
     
  5. JSHINV

    JSHINV

    HOBO

    Well, its confusing because their statement immedidately before the one you cite says:

    "Short sales of securities identified in Appendix A of the Emergency Order as a result of the expiration of SSF sales made today and held to delivery would not be excluded from the ban on short selling. If you have any questions please contact OneChicago’s General Counsel Donald Horwitz, dhorwitz@onechicago.com or 312-424-8519."

    Then before that:

    “The Commission staff is recommending to the Commission a modification to its order prohibiting short selling in securities of specified financial firms. This modification would extend, for the life of the order, the exemption for hedging activities by exchange and over-the-counter market makers in derivatives on the securities covered by the order.”


    First quote above says no. Second quote says, they're recommending.

    Your quote says no restriction.

    It would be good if they time stampled their announcements.

    But, by Monday the SEC may change it's mind again. If you can short single stock futures, then why have the ban anyway? I am against the ban in all its aspects by the way.

    Consider this:

    Sell Citibank 5 Oct 08 calls at 20 and buy 5 Oct 08 Puts at 20, you've got the synthetic equivalent of 500 short C shares at market.

    QUOTE]Quote from HOBO:

    JSHINV,

    According to One Chicago website, TRADING of SSF is NOT affected:

    Additional Notice to Members
    As further clarification regarding the SEC’s Emergency Order restricting short sales, please note that there are no restrictions on trading SSFs on OneChicago and that members may buy and sell in the ordinary course throughout the SEC’s order that expires on October 2, 2008, unless further extended. If you have any questions please contact OneChicago’s General Counsel Donald Horwitz, dhorwitz@onechicago.com or 312-424-8519.

    [/QUOTE]
     
  6. HOBO

    HOBO

    Cutten

    I believe, shorting of OPTIONS is NOT restricted. See instructions for form SH on page 1 below:

    "... The Form SH filing must be made on the Monday (or, if Monday is a federal holiday, the first business day thereafter) of each calendar week immediately following a Form SH reporting period (i.e., the preceding Monday-Sunday, or seven calendar days) in which the Manager has entered into any new short positions or closed part or all of any short positions with respect to any section 13(f) securities except for any short position(s) for options (“SH Short Positions”)...."

    http://www.sec.gov/about/forms/formsh_instructions.pdf


    AUTOMATIC exercise of pre-existing options should not be affected. See page 3 of RELEASE NO. 34-58592:

    "… In addition, we are providing an exception to allow short sales that occur as a result of automatic exercise or assignment of an equity option held prior to effectiveness of this Order due to expiration of the option…"

    http://www.sec.gov/rules/other/2008/34-58592.pdf
     
  7. JSHINV

    JSHINV

    I went back and read it. Based on my more careful read, the best I can tell the SEC hasn't decided yet. SEC staffers are recommending to the Commission. Staffers understand market implications first and political considerations second. While the commission considers the political first and the market implications second. But, the commission hasn't decided. It is one big cluster ****

     
  8. cvds16

    cvds16

    you may have noticed allready but on friday option prices in financials reflected the fact that stocks were hard to short, put options had a much lager vol than the calls of the equivalent series whereas they 'should' be the same under normal conditions.
     
  9. I've read the order and it's completely unclear if you can buy puts, or even hold pre-existing short positions.

    It does not say "you must close out existing short positions, and are prohibited from opening new short positions" - which is what you would expect if that's what they wanted to achieve.

    Clear as mud.
     
  10. You may still buy puts on any of these stocks. If already own puts, that's not a problem.

    You may still sell calls on any of these stocks.

    You may exercise a put on any of these stocks.

    BUT - once you have a short position the the stock (as the result of a put exercise or a call assignment), your broker will probably not be able to borrow the shares and you will be forced to buy them in.

    But, the bottom line remains: You may buy puts. The only time there will be a problem occurs AFTER the option turns into a short stock position.

    Mark
    http://blog.mdwoptions.com/options_for_rookies/
     
    #10     Sep 21, 2008