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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: steve harris who wrote (395478)	7/1/2008 8:08:30 PM
From: pgerassi	Respond to of 1572033

I actually believe that two forms of option sellers were put into place to meet the unlawful commodity index speculators. The law enabling commodity index futures (and the creation of the CFTC) has specific rules to restrict speculation in commodities to a small fraction of the underlying commodity in question. These laws continue to be unenforced. The first of the two types are those that actually buy oil, store it and sell options with premiums large enough to pay for the oil bought, the storage fees and other related expenses for the period of the option and a profit to make all of this work worthwhile. These sellers would only lose, if the oil prices drops below that selling price minus the premium plus the storage expenses incurred. Given the dynamics with index speculation, that's a remote chance. As the options would expire, index speculator, instead of exercising the option, roll it over for another longer period paying another premium of the storage expenses and more profit. As this continues, the cummulative premiums minus the storage expenses become greater than the entire oil purchase price. Thus the original seller will never lose real money (only profits on paper) on option expiration even if oil prices drop to zero. This first type actually increases the price with his purchases over time as that is demand that is added to the real consumers at every time he makes more oil options. Much of the index speculator options were bought from this source. The second type is the paper oil option seller. They are typically some "Fly By Night" company that exists only to sell naked options. They could not make good on any real exercising of the option, trusting the index buyer to stay true to form. Any premiums paid are quickly moved to offshore havens, off book. Any attempt to exercise any options they sold will send the principals to their transport which sails or flies quickly to parts unknown. Thus the options are worthless. Sometimes the initial buyer knew full well that these are fake, other times, they were fooled. The initial knowing buyer sells these to a third party which he knows is a index speculator in those "dark" exchanges, mostly to continue the scam for as long as possible and not be left holding the bomb (worthless options). These also bid up the price, but indirectly, both making the premium higher and more desirable for the first type, and in making the spot price higher as the bubble swells by lowering the premium to take away business from the first type. Either way, the scam becomes public when either a real user exercises the option he bought or the index speculator needs cash and needs to exercise the in the money options to generate cash. The FBN goes bankrupt, ceases operations and the principals disappear. And the option exerciser gets the shaft. They either take the loss and not tell anyone or they make a big deal out of it and complain to anyone who will listen. These should be prosecuted to the fullest extent possible, both the FBN principals and the knowing buyers. The first type at least took some risks initially. But the real criminals are those index buyers who skirted the law plus those that advised them on how and caused all this to happen. They should take the bath by being forced to exercise all the outstanding options making the first ones whole in all cases and then forced to sell off the commodities beyond the legal limits. And be barred from purchasing them anytime soon. This will unwind the deals and cause the underlying commodities to crash below their true balance price points for a time. They will slowly climb back to being set by supply and demand. Sure this will cause disruptions, but will shake out most of the ills that happened over the last few years. The cynic in me says that government will do this about late September or early October to have the maximum effect just before the elections in order to get reelected come November. Personally, I think we should throw them all out of office (even any apparent good ones) and put a bunch of new moderate practical ones in. They are needed to solve the mess the rest got us into. Fix Social Security (more taxes and retirement age goes up), go to Single Payer Universal Health Care (the only one that will work given that health care is so secretive as it is now), get rid of Lose Liberties for Security exchanges (Patriot act, Homeland Security, Federal wiretap laws, etc.) and rework the intellectual property laws more back to the original ones (20 year fixed term with no extensions allowed, ever, for both patents and copyrights, fair use codified in plain terms and as far as copyright goes, pristine copies of any mass produced work have to be maintained at the holder's expense during the copyright term). Pete