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View Diary: Ban on Naked Short Selling- Good or Bad? (15 comments)

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  •  Short selling is a reasonable action, (2+ / 0-)
    Recommended by:
    burrow owl, theran

    contributing to "price discovery"by the market. Without it, investors would be left vulnerable to more hype.  Without the profit motive, how would adverse information be made available to the market?

    "He that troubleth his own house shall inherit the wind."

    by lordcopper on Wed May 19, 2010 at 08:58:22 PM PDT

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    •  How about an honest, independent press? N/T (2+ / 0-)
      Recommended by:
      Jim P, Lefty Coaster

      Big Joe Helton: "I pay Plenty."
      Chico Marx: "Well, then we're Plenty Tough."

      by Caelian on Wed May 19, 2010 at 09:02:26 PM PDT

      [ Parent ]

    •  But there are ways to short without (4+ / 0-)
      Recommended by:
      Garrett, PeteZerria, wgard, edtastic

      bringing the market to its knees when black swans come to roost.  If you really want to short, then pay the option premium and buy long puts.  At least that way your loss is capped at the moment the trade completes.  Why should major firms be allowed to sell naked calls at 100:1 leverage and then expect to be bailed out by the government when their bets go bad?  And why should they be allowed to sell naked calls at high leverage hoping to manipulate the market into a quickie downturn so that they can turn a quick profit?  I would argue that the highly leveraged short selling in the derivatives market has next to nothing to do with the real "price discovery" associated with the underlying equity.  There is simply too much illiquidity and too much opportunity for manipulation for it to meaningfully reflect the value of the security.

      Having a policy does not mean receiving care. -- Tzimisce

      by Miggles on Wed May 19, 2010 at 09:11:13 PM PDT

      [ Parent ]

    •  yes (1+ / 0-)
      Recommended by:

      Short selling in itself is fine, naked shorting isn't.  

      •  Give me an example of a problem caused (0+ / 0-)

        by naked shorting.

        "He that troubleth his own house shall inherit the wind."

        by lordcopper on Thu May 20, 2010 at 06:05:35 AM PDT

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        •  I'm not necessarily pro or con naked ss (0+ / 0-)

          I think my diary is getting misconstrued.  The whole point of it was to point out that the idea that the German market or the Euro market will collapse because of the ban is insane when you look at the actual debt ratios and balances of the governments.  

          All of this being said Naked Short Selling can artificially lower a stocks share price and if the finances of the firm are not in good order it can cause massive problems.  

          For a long example on what it can do check this out.

          •  The German ban is selective, applying only (0+ / 0-)

            to govt bonds and financial service companies (banks).  It makes you wonder what they're afraid of.

            While naked shorting can artificially lower price temporarily, over the longer term information (quarterly results, 10Q reports) would confirm or refute the pricing.

            "He that troubleth his own house shall inherit the wind."

            by lordcopper on Thu May 20, 2010 at 08:22:38 AM PDT

            [ Parent ]

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