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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (192025)	3/20/2009 6:07:39 AM
From: butschi2	Read Replies (2) \| Respond to of 306849

March 19 (Bloomberg) -- The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts. I would bet must FTDs came from market makers that are excempt from "naked" short sale threshold list. They perhaps tried to protect their short put positions via a increasing short sales. Bear had around 50.000 put contracts bought at $50 or $55 a few days before they hit the wall. This are around 5 million (AFAIR = ~5% of the oustanding) shares . The option seller perhaps started to make an offsetting short sale after the price went below the strike and then the price really dropped in very short time frame of 15-30 minutes from $53 to $27 on huge volume. Therefore huge open put positions going in the money should drive stock prices down further in a very short time frame if the company is already on the the brink. $20=($50[strike]-$27[share price]-$3 [put price]) * 5 million shares is a loss of at minimum $100 million or more in around 30 minutes if the put seller doesnt make offsetting short sales or has an already closed position. If you are a option/futures market maker you dont need to cover your naked shorts and why lend the shares for your short position if you get them delivered in a few days from the put buyer !? This wouldnt make sense for the market makers to pay more money for lending the shares for only a few days. Monday the price opened at $2-$3 because of the take over offer and was raised later to something around $10. Thats a traders heaven and a nightmare for put options sellers. Shorting (naked or covered) is therefore the most viable offsetting position for the put sellers to protect their portofolio somewhat.