Interesting article Babak. Wonder who will end up holding the bag on this one. My guess is that it won't be the ones who run "the game" (as usual).
a technical point/question. A bullet is a married put correct? Therefore a bullet really is not really the short sellers answer b/c the part of the bullet that makes the money as the stock falls is the deep in the money put. So a naked short seller could just buy the deep in the money put or perhaps sell a deep in the money call as long as the delta/gamma was acceptable ?
Interesting. In futures, this type of occurrence is prevented by the process of marking to market during the delivery month. Contrary to what to gold bugs imply, banks cannot multiply their short futures positions without limit because they must either deliver physical gold or reverse their short position. Nakes short sellers of stocks have no such barrier, but it seems Valinoti found away to introduce reality back into the process.
Yep Jem as I know you use them daily. Bullet firms write their own 1 day option expiration contracts on them. So there is almost no time premium in the contract. it's illegal to do a short without hitting the short button than trying to justify it by doing a bullet . When we own a bullet we have a long position actually in our account too. This is why when we hit the short key and own a bullet we use it up as the short ends up covering our long stock that we don't see in our trading montage but bullet software has given us. Hope that helps Robert
I knew that companies could issue stock but I didn't know that brokers could issue the companys stock as well, and without even an IPO process. Brokers selling shares they don't own is a whole new dynamic (to me). I wonder if they do it with equities like QCOM. They could come up with a huge amount of capital(to loan out at interest) if they sold 1.4x their own and their customers 40 million QCOM shares. It would amount to about $500,000,000, and the possibility of getting squeezed would be small.
rtharp you have done your home work. I always wondered how the option was created but I never asked. A one day option huh. Now a futher question. Do they have to have the stock in inventory.