Amein,
Note that as long as the MM was continuing the manipulation, (s)he was losing money, as both the ASP for the shares sold (67.5) as well as the price for the shares remaining in inventory (65) is less than the original share price (70). IOW, the MM successfully pushed the price down but not profitably.
Next, the assumption that the downward momentum continues afterwards is akin to predicting the future of equity price trends w/o external forces (in this example artificial selling pressure by the MM), which is unpredictable. You have to assume that the non-MM world is uniformly gullible and irrational for predictability to be realized. An unreasonable assumption if you ask me. The small investor with a finger on the panic button doesn't make 100% of this world, there will be huge pension funds, corporate buyback programs and mutual funds with money sitting on the sidelines who may and most probably will buy these artificial dips. That will push prices back up and the MM will end up losing money.
From another angle, the example you present is a so-called free lunch, a money machine. Such opportunities should last for very short intervals in a competitive market. What determines the final starting buyback price of 60? What if one of the colluding MMs start buying back at 61 thinking that the price will never reach 60 and the buy-the-dippers may step in before that? What if another one doubleguesses the first and steps in at 62? After all, the colluding MMs are in the best position to know that the prices have been artificially lowered. Unless some sort of honor among thieves acts as a counter force, in the absence of external manipulation everyone is guessing and prices are moving towards stability.
-Apratim. |
