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deonb
Active Member
Sadness! They are playing around with September's today, but doesn't appear to impact the price. Probably cause the volume is now so low in comparison.
I'm going to miss my Tuesday PM buy-ins. Was like free money in the past.
I'm going to miss my Tuesday PM buy-ins. Was like free money in the past.
You guys will probably enjoy reading this:
Florida Professors Experimented With a Little Naked Short Selling - Bloomberg
Florida Professors Experimented With a Little Naked Short Selling
Florida Professors Experimented With a Little Naked Short Selling - Bloomberg
Florida Professors Experimented With a Little Naked Short Selling
So they didn't say which security this was being done on. Is it possible that they were the culprits behind the fishy activity with TSLA last year?
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I think luvb2b called this one and brought it to the SEC's attention. It all fits with TSLA last year.
If you click through to the linked settlement the securities are listed, but TSLA is not one of them. It does specify that it was "at least" the listed securities, which leaves some possibility that TSLA was one of them.
deonb
Active Member
The SEC order is actually much clearer than the reporting on it.
http://www.sec.gov/litigation/admin/2014/33-9522.pdf
For the first time I'm finally understanding how this scheme worked!
http://www.sec.gov/litigation/admin/2014/33-9522.pdf
For the first time I'm finally understanding how this scheme worked!
Mario Kadastik
Active Member
Ok, can someone tell me what is exactly illegal. For example if I buy puts for FB (or TWTR as an example) and then exercise them (or they expire ITM and get exercised) without having the stock I'm basically a naked short for the stock as I've not borrowed or shown where I can get it. Is that illegal or if I cover it immediately I'm ok? I've had it happen once accidentally (was traveling in China and mixed up the timezones so forgot that the market closed while I was sleeping and my FB puts got exercised). I covered them in next Mondays pre-market trading (and lucky I did as it went up a lot in regular trading). So the question is at which point does it become illegal?
Causalien
Prime 8 ball Oracle
In the case where you bought puts. It expires worthless. Or... you can exercise them before expiration. Which basically means that your brokerage buys some stocks for you so it can be "exercised". This is an unlikely scenario since it is always more cost effective to just sell the puts with the premium if it is in the money. However, for one freak swan or another, some people do exercise and those who do are doing it for a strategic move to corner the market, as an arbitrage play when the greeks went out of whack or to simply scare people.
Now, where it might become illegal is if you naked sold puts. Basically, if you got exercised on a stock like TSLA and you don't have the money, you owe your broker money.
The other illegal action that is more problematic is when you sold naked calls. I had a lengthy talk with my brokerage on this process when the rolling naked short around last year's April was in progress. You are basically on the hook to find stocks to fulfill this demand. In a stock like TSLA during last april when there are no stock available to borrow. You are in for some rude awakening. This is the reason why cost to borrow went up so much. Someone demanded stock to be delivered, there are more shares out there than in existence (i.e. shares created out of thin air by naked shorters) and cash cannot be used to fulfill this request.
Mario Kadastik
Active Member
Ok so in my case where I forgot and went short out of accident it wasn't illegal I guess. I do sell puts at times for some securities and do it on margin without having the full cover. However I do assume that I will buy it back and not let it get exercised. Now with the american style options the real risk is that someone exercises them before expiry meaning that I end up with the stock and margin call. I don't sell naked calls however, that's far far too risky though I have contemplated selling a straddle in case of some stocks during ER to benefit from the high IV and the imminent collapse the next day (assuming the stock doesn't really move as much). How is that considered? Let's assume some stock like MSFT has earnings on Thursday and I sell the ATM straddle. I guess if I just buy it back on Friday for profit/loss it's fine, but if someone decides to exercise their call or put in after hours post-ER, then I'm in deep ****?
Causalien
Prime 8 ball Oracle
It's rare that you get stock assigned and then margin called. Usually it happens when the stock drops more than you have margin. In the case of TSLA, it is usually because brokerage only gives 5% (in my case) value for margin on TSLA stocks. So most of us who play TSLA options with stock components will realize sooner or later that we can't maneuver as much as our position sizes grow.
In your straddle case, you are in trouble IF you are in TSLA options. It is not such a big deal for most normal stock as it is not hard to borrow any other stock on the market. 80% cost to borrow a stock is rare. I've only ever seen it once in my life. Usually the broker will be able to borrow it for you (for your short call). However if they fail to do so, it is up to you to come up with the borrowed share within the 3 day settlement period. The broker is not obligated to find it for you.
The people in the article just continuously violate this period by reversing the trade and forcing the assignment of imaginary share back to cover the original demand for stock, but at any one time, both account have an outstanding violation of non delivery of stock. In this case, the SEC's charge is correct. As the violation is about subverting the "would be" penalty for non delivery instead of earning the payout of the cost to borrow... It is pretty stupid though as they could've just done the same thing with 2 year leap option without constantly violating the rule.
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