Cheap way to start a squeeze?

Discussion in 'Trading' started by andread, Aug 20, 2006.

  1. andread


    I realize that I might cause a lot of flames, but I have to say that sometimes I like to look at the Yahoo boards. Although there a lots of useless messages, I can find sometimes something interesting.
    One of the messages I found is about a way to start a squeeze buying options. There is something that makes sense, but I'm very skeptical: the discussion about the delta, posted in the last post, doesn't really convince me. I wanted to ask if I'm right. this is the link:

  2. 1. Its not 'cheap.' This fact becomes more evident as a trade moves against you.
    2. It is not clear that a call seller would be 'forced' hedge with long stock.

    If I was a market maker who had sold a shitload of calls in a deal that smelled of this scheme, I'd offload much of the short call position among several market making buddies, who would then join me in a shorting campaign to shake you out.

    Still, every strategy works at some time or another. Perhaps this one does too on occasion.
  3. Doing a "bear raid" is easier. You buy a lot of put options on a stock. Those short-put holders will want to short-sell the stock in order to hedge. The down-tick rule might stall their ability to do that at advantageous price levels, until after the stock takes a plunge and a big buyer emerges to absorb the selling. Try it sometime!
  4. andread


    Have you done it? Do you find it "cheap"?
  5. Dude, I think mms are exempt from the tick rule