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Naked shorting: The curious incident of the shares that didn't exist (2005)

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Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#201

Post by phyalow »

dragonwriter wrote: post #197
ineedasername wrote: post #196

Earlier quoted context omitted.

If you own all of the voting shares sure. But a company can have 100,000,000 shares, own 99,000,000 of them, so only 1,000,000 are trading. If you buy all 1,000,000 of those shares you don't have much power.

If you have 100% of the outstanding shares, you have 100% of the voting rights; treasury stock doesn't vote.

You are both right, but you are missing the point. It is entirely possible for controlling interests to be held in other classes of shares (or even common), that is not counted in the FREE float available to trade.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#202

Post by arcticbull »

LordDragonfang wrote: post #180
arcticbull wrote: post #132

Earlier quoted context omitted.

>>> Gold Window The gold window was closed because gold was garbage money. A money supply you can’t adjust cannot respond to shocks and it can’t respond to changes in the economy or society. The crash in 2008 and again now would have been much much much worse without an ability to control supply. Inflation is defined in terms of supply and velocity. Velocity plummeted so supply was raised to offset and lo and behold…

>Wages are up 10% since 1963 on an inflation adjusted basis And they're down 5% since 1970. Claiming that chart shows growth is a gross misreading of that source. The slope of the trendline since 1963 is practically zero.

Yeah I should have referenced it as “kept pace with” as I did in the original post for which the parent requested proof.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#203

Post by freeone3000 »

FabHK wrote: post #124
cstrat wrote: post #87

Earlier quoted context omitted.

In addition to the shorts, when people buy call options - doesn't that mean someone else is on the hook to provide shares at a later date, and they might not hold them at the time of selling the option?

When you buy a call from an option trader, you're long the stock, trader is short, so they will buy shares to hedge themselves.

They often do, but they don't have to. You can write an uncovered call, if you're brave or stupid -- after all, worst case you'll just market buy the shares to deliver on the day the option is tendered.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#204

Post by haberman »

harryh wrote: post #190
swixi wrote: post #174

Earlier quoted context omitted.

This just seems like a complicated way to go about budgeting correctly. Save money when you have excess from increased revenues, and use that to cover yourself when revenues decrease. I don't understand what is gained by bringing puts into the equation, if they are just as cyclical as your revenues. And it seems to me that you'd need a decent understanding of what your budget should be in order to decide how much to…

Saving money requires keeping cash (sometimes a lot of it) in the bank that could otherwise be put to productive use. Options contracts allow offloading of risk without keeping this excess cash sitting there doing nothing. It can be much more capital efficient.

Call me crazy but I thought the idea is that banks would use deposits to fund loans and kick some of the profit back to the account holder in the form of reasonable interest rates.

That seems capital efficient to me, but it's apparently a quaint relic of the past now that eternal 0% interest rates are the norm.

I'm reminded of the scene from It's a Wonderful Life where George Bailey explains to all his account holders why they can't all withdraw their money at once, because it's being put to productive use by their fellow townspeople: https://youtu.be/iPkJH6BT7dM?t=49

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#205

Post by austhrow743 »

oblio wrote: post #118
dleslie wrote: post #66

Earlier quoted context omitted.

When it's not the purchase-a-thing model it's otherwise-disinterested third parties making large bets on possible future outcomes. It has more in common with a bookie's ledger than a warehouse of goods. Why this is often harmful and dangerous is that the financial viability of businesses and individuals are often backing these bets. A person or company expecting financing to be predictable and stable may suddenly fin…

I still don't understand why these kinds of derivatives are not banned. They're, as you described, basically betting. Except for a handful of folks, everybody loses money on them. The ones that do make money are rigging the game (à la casinos) or are just lucky. Some of the lucky ones have been lucky for decades, some even went bankrupt after being lucky for so long.

Why does it follow that they should be banned if it's just betting? Except for a handful of folks, everybody loses money doing that as well.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#206

Post by ineedasername »

esrauch wrote: post #115
LatteLazy wrote: post #78

Earlier quoted context omitted.

His broker can recall the lent stock, so they'd recall it and have it sent to whoever bought it on their/his behalf. I worked on a computer system to handle all this for a while. It was front office so as well as buy/sell transactions we had to process lend/return and borrow/return actions to actually understand the company position. Within each of those are lend request messages with approval/declines etc.

I don't understand how this can work. The broker loans the share to person B. Person B sells the share to person C (as B wants to short the stock). How can the Broker recall the share: they have no relationship with the current owner of the stock. Even if the broker demanded B rebuy a share to return the stock, since the original guy owner all liquid shares, it would only take one other share holder to holdout to mak…

They still recall them from person B, who has no choice but to buy them at whatever price is available to cover their position.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#207

Post by lmm »

ArchD wrote: post #198
lmm wrote: post #176

Earlier quoted context omitted.

Same as if you pay for ten tons of lumber and it doesn't show up. Stock trading grew out of traditional property trading and inherits a lot of its norms from there.

Does it have to be that way? Everything is electronic and stocks can move at the speed of the network whereas lumber cannot. There could be some archaic processes that are not electronic but are there inherent good reasons why they cannot be converted?

Not necessarily. But we're talking about a heavily regulated system, run by a lot of very conservative entities, that currently works pretty well on the whole; there's going to be a whole lot of "if it ain't broke don't fix it".

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#208

Post by phonon »

YZF wrote: post #111
brockwhittaker wrote: post #62

Earlier quoted context omitted.

Not all shares have voting power, and even so the voting power of those shares (if they were 2% of the company for example) may be proportionally tiny compared to the founders/board/execs. For example shareholders don't have any control at FB, since Mark controls 51% of the voting power.

It's fairly unusual to have companies with this sort of structure. Why would you ever buy shares in a company that doesn't pay dividends and where you can get infinitely diluted and have no control? (other than for speculative reasons)

NYSE: SNAP ("Snapchat") listed shares have no voting rights, and they seem to be doing okay.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#209

Post by freeone3000 »

harryh wrote: post #190
swixi wrote: post #174

Earlier quoted context omitted.

This just seems like a complicated way to go about budgeting correctly. Save money when you have excess from increased revenues, and use that to cover yourself when revenues decrease. I don't understand what is gained by bringing puts into the equation, if they are just as cyclical as your revenues. And it seems to me that you'd need a decent understanding of what your budget should be in order to decide how much to…

Saving money requires keeping cash (sometimes a lot of it) in the bank that could otherwise be put to productive use. Options contracts allow offloading of risk without keeping this excess cash sitting there doing nothing. It can be much more capital efficient.

But you're not offloading risk -- you're increasing risk. What if jet fuel rises for some reason other than increased usage? What if usage is increased, but, people simply aren't visiting your region?

Simply doing something with the money is not necessarily better than doing nothing with it. None of the above is productive use -- it's simply betting. Jet fuel producers don't care about your commodity-indexed fund call option.

Re: Naked shorting: The curious incident of the shares that didn't exist (2005)

#210

Post by initplus »

oblio wrote: post #118
dleslie wrote: post #66

Earlier quoted context omitted.

When it's not the purchase-a-thing model it's otherwise-disinterested third parties making large bets on possible future outcomes. It has more in common with a bookie's ledger than a warehouse of goods. Why this is often harmful and dangerous is that the financial viability of businesses and individuals are often backing these bets. A person or company expecting financing to be predictable and stable may suddenly fin…

I still don't understand why these kinds of derivatives are not banned. They're, as you described, basically betting. Except for a handful of folks, everybody loses money on them. The ones that do make money are rigging the game (à la casinos) or are just lucky. Some of the lucky ones have been lucky for decades, some even went bankrupt after being lucky for so long.

The argument in favor of allowing shorts is that they provide a strong monetary incentive for private investors to investigate and expose financially fraudulent companies.
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