381–390 of 403 posts
Very, very much a crank site. One pinch fact, two cups of confusion, and generous splash of seething rage. It's interesting in much the way the Timecube site is interesting...and is informative about financial markets in much the same way the Timecube site is as well.
This entire topic has been poorly addressed. I don’t think I’ve had stronger Gell Mann vibes on HN than I’m having with this story.
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No matter how many times it gets repeated in the thread it is still nonsense made up by the stock market. Exchange "Share" with "Burger" and see how many Burgers you can create from thin air. If you end up with more than one you should start a McDonald's competitor! If you can't it is because you are making mental gymnastics as soon as the word is some magical word Wall Street made up. Sure it is correct that you can…
Person A has burger. Person B borrows A’s burger and sells it to Person C. Person D borrows Person C’s burger and sells it to Person E. Still seems to work? Then, tomorrow Person B and Person D owe burgers to Person A and Person C. If there is only one burger in existence, this will create demand pulling prices up I’d think.
What can happen in real life is Person A and Person C are given a digital receipt confirming delivery of the burgers they were owed and that is the end of the transaction. To shield themselves from revealing potential fraud, the brokerage will charge a $500 fee if either of them ask for proof of their burger.
Now, while there may only be one burger in existence, it appears as though there are two, keeping demand artificially flat.
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Each loan is also a deposit. Each debit is also a credit. Similar, each short seller not only adds a _virtual_ share to the market, but also has an obligation to later on buy a share back.
> each short seller not only adds a _virtual_ share to the market, but also has an obligation to later on buy a share back Again, to be super clear: for everyone but market makers, the law is you have to locate the borrowed share before selling short. Market makers can naked short to provide liquidity in a buying frenzy. Given they're shorting into a buying frenzy , they tend to be quite motivated to immediately cove…
I think naked shorting would be a perfectly valid thing to allow every investor to do, you clearing house would just want to ask for pretty high margin requirements.
Very similar to how there are covered call options, but also naked call options. And the economy hasn't collapsed either.
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Companies are allowed to issue non-fungible shares. Eg it's common in some tech companies to give the founders super-voting stock that reverts to normal stock on sale.
Yes, but assets that are traded within a particular financial market is fungible. When you buy a share from the open market, they are not going to guarantee a particular share with a particular serial number you specify, they will only provide a number of that particular class of share of the company.
Most companies decide to make their shares fungible, because they want them to be readily tradable.
But there's no one forcing anyone here. Companies and investors could agree to shares with particular serial numbers.
It's just so much more convenient to have fungible shares, that this is where all the capital goes.
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You know that a put and a call combine to make a synthetic stock? See https://en.wikipedia.org/wiki/Put%E2%80%93call_parity (If you write a put and a call for the same strike, you are basically in the same position as a short seller. If you buy a put and a call for the same strike, you are economically in the same position as an owner of the stock.) Hence, you can't separate options from stocks.
Economically, sure, but not literally. If you hold both a put and a call, for instance, you can't vote with them, or earn dividends. You would not say you're the actual owner -- whereas a short sale creates a negative actual stock.
When we talk about naked shorts, they would still have to be covered before delivery (usually two days after the trade).
And when buying a normal stock, not from a short seller, you also can only vote once you take delivery. So everything is the same.
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Though arguably, naked short selling should be allowed as well. (With certain safe guards and sufficient margin requirements.) After all, we allow something similar to naked short selling when people write options or trade futures. And those markets work just fine.
As an investor I would rather an actual share, than a promise. They are not fungible to me. Even disregarding the risks, an actual share comes with voting rights.
The actual share gets delivered 2 days later, and it doesn't matter whether who you bought from, short-seller or otherwise.
Your voting rights are exactly the same.
You are right that replicated shares with options and other derivatives usually does not come with voting rights. That's true.
The market price for voting rights on individual shares is usually miniscule. But non-zero.
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Though arguably, naked short selling should be allowed as well. (With certain safe guards and sufficient margin requirements.) After all, we allow something similar to naked short selling when people write options or trade futures. And those markets work just fine.
Naked short selling is allowed by market neutral market makers, but it does not function as convention short seller. Under current regulation, a naked short seller is not looking to make a profit from a future decrease in price, but instead ensuring market availability of the stock. E.g., if there is a sudden increase in buyers market makers continue to make good on their obligation to always be willing to buy and se…
My comment was meant to say that I think it would be fine to allow everyone to do naked short selling like that. Of course, subject to margin requirements etc.
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You know that a put and a call combine to make a synthetic stock? See https://en.wikipedia.org/wiki/Put%E2%80%93call_parity (If you write a put and a call for the same strike, you are basically in the same position as a short seller. If you buy a put and a call for the same strike, you are economically in the same position as an owner of the stock.) Hence, you can't separate options from stocks.
This is not entirely accurate. It is the same position as borrowing some amount of money to buy the stock. If I buy a put and call and the price at expiry is exactly that strike I am guaranteed to lose money.
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> naked short selling at volume will create a self-fulfilling prophecy To be super clear, naked short selling is banned for everyone but market makers [1]. A market maker goes naked short when there is a buying frenzy. Their economic incentive is to then cover the short given they are in a buying frenzy . The NYSE explicitly markets its specialist system to issuers as a stabiliser mechanism. It’s a selling point to l…
Though arguably, naked short selling should be allowed as well. (With certain safe guards and sufficient margin requirements.) After all, we allow something similar to naked short selling when people write options or trade futures. And those markets work just fine.
When someone buys a stock very often the purpose is to "physically" have it as soon as possible.
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This is not entirely accurate. It is the same position as borrowing some amount of money to buy the stock. If I buy a put and call and the price at expiry is exactly that strike I am guaranteed to lose money.
Agreed. One of the reasons is that the option has a risk and therefore there's a cost associated with managing that risk and taking on the trade.
To replicate the stock, you'd buy the call and sell the put. The risk exactly balances out in the sense that a total portfolio of 1 stock short, 1 call long and 1 put short would have zero risk and behave like a risk-free bond.
(If the risk premia of the long call and the short put would not exactly balance, you could make money with very simple arbitrage trades.)