Didn’t have anything better to do… but to ask an otterly untouched subject to date…
Forum > What’s the Reason for Driving down the price of Stock? Are these mainly option play'n folks who do this?...
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Posted November 04, 2009 (03:03PM)
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Posted November 04, 2009 (03:18PM)
Supply and demand, supply > demand, share price goes down. Am I missing the question?
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Posted November 04, 2009 (04:09PM)
Manipulate... Positive and Negatives.. |
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Posted November 04, 2009 (05:41PM)
Owl would say to inflict the most pain on the most traders, but I also agree with OF regarding supply and demand. If it is a large entity selling off shares they may be trying to induce panic selling so they can buy the shares at a better price. Not sure... just a thought.
Kind of like if you have a customer and you tell them the price of the widgets you sell are $9.00 but they say they can get them down the street for $8.50 each. You need to sell your slow moving widgets so you agree to sell the widgets for $8.40 only to find out it is your competitor who bought all of the widgets in the area and now they can set the price. |
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Posted November 04, 2009 (06:40PM)
I found this article very enlightening, I'm not sure if OF posted it here or I found it in my own wanderings, but there is a definite hedge play in there with the historic observation for what large fund managers usually do at the end of the year.
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Posted November 04, 2009 (07:05PM)
Suppose a large investment firm wanted to buy millions of shares of a particular stock but first bought a lot of calls at a stirke they intended stop buying. At which point they sell the calls, buy puts and commence selling the stock. Would this scenario be legal? If so they could make a lot of money on each turn-around!
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Posted November 04, 2009 (07:36PM)
Dear Otter, A few thoughts on options effecting the price of the underlying:- First and most important, options are derivatives, so that would be the tail waging the dog. This is not to say that there is no effect, ever from the option towards the underlying. Here’s a possible example:- Say a biotech is about to have a compound review by the FDA for approval, and we see a large number of just out of the money puts or calls trade, say we see open interest jump from 43 contracts to 3543 during on day. We might think that maybe somebody knows something and is using that information. This knowledge can on occasion move the price of the underlying as well as influencing the options price. But this is not a normal situation. Second, we small time options ‘players’ have noticed that sometimes ours offers might effect options pricing, but not the underlying. I have seen were my order will make the market in say CLX, but never in say INTC. I say I am making the market, when I see the market quote change with my placing or changing my offer. Third, people have tried to effect the price of markets from time immemorial. I believe that there are (poorly effective) laws that cover most of these manipulations. I say bring back the gibbet. |
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Posted November 04, 2009 (07:40PM)
Which is why the SEC should have version of a PDT rule for large investment firms that prohibits buying or selling more than a given percentage of that stocks market cap in the course of a specified time period, even 1% of it's value is enough to move it's price when placed at the right time. Cramer has discussed many topics of this nature through the last year, another one is to manipulate a stocxks price in pre-market trading to lure buyers, wait for the hype surge, then sell your bulk at a nice gain...Cramer himself disclosed that little trick. We had a member who talked about looking at premarket prices to gauge whether to buy a stock at the bell based on it's movements beforehand based on some "momentum trading" website's suggestions, I hope that persons ok now.. Add dark pools where that institution can buy or sell massive blocks without the market in general knowing and hopefully I stop looking so much like the angry trader when I often talk about these things. |
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Posted November 04, 2009 (08:15PM)
Periodically people talk about large investors manipulating the market by simply buying a lot to drive prices up, or selling a lot to drive prices down. Is there any actual evidence that this works? For it to work, you have to assume that your buying is going to induce a lot of other people to come in and start buying after you, so the price continues upward after you stop buying, so that you can have a chance to sell at a profit. But your buying might induce more people to sell, rather than buy -- as the price goes up, perhaps a lot of other investors will see the chance to take profits. Perhaps value investors will decide it is no longer a good value.
So it's not obvious that this sort of scheme would make you money, rather than just being a quick way to lose a lot of money. El D had a more complex and more plausible scheme: No, stock manipulation is illegal. Though that doesn't necessarily mean you couldn't get away with it. |
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Posted November 04, 2009 (08:47PM)
Assuming you could get away with it, I left out half of the profit, sell puts and buy calls on the way up, sell calls and buy puts on the way down. Of course the problem for the small investor would be getting enough shares and avoiding attention (not likely). Sort of a pump and dump without publicity.
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Posted November 04, 2009 (08:49PM)
Owl it from the horses mouth to you - http://seekingalpha.com/article/30257-jim-cramer-admits-to-stock-manipulation-when-at-hedge-fund
This isn't someone's interpretation of what he said, not a rumor of what someone thinks he'd said, it's him saying he did it and that it's standard practice. As Shap mentioned, there are "rules" in place, but either those regs ;lack common sense and are replete with loopholes, or the SEC was too busy watching Madoff to notice, much like Naked shorts had become so commonplace despite being illegal. We know that "rat" (forget the full name), was insider trading, we might assume it was done much more than just the times he was caught, we can also guess that for the ones that have been caught there are probably a dozen that did it too. My guess is that we don't have much more blatant evidence because hedge fund managers aren't lining up to joyfully proclaim these things to the public. |
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Posted November 04, 2009 (09:09PM)
Thank you all for your input… I was trying to figure the reason why someone would want to drive down the price of stock. Your responses have given me some food for thought… |
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Posted November 04, 2009 (10:25PM)
Sorry - looks like we missed the question. Well, if I can manipulate the market and I have a short position in some shares, I will drive them down and cover the book profit
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Posted November 05, 2009 (11:39AM)
In an ironic twist of chronological fate, this mornings breaking news is a pretty good answer to this question.
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Posted November 05, 2009 (07:38PM)
Obviously, we all are trying to make a profit, and as
long as you abide by the rules/laws, “let the wild rumpus begin”. As OF is want to point out, you
can make money betting that a stock will fall as well as raise. Why there are option plays that allow
you to make money betting that a stock price will stay in place (straddles and
strangles). So there are all kinds
of suits for sale, as Inky is want
to point out, if you engage in certain types of behavior, the suit you will be
handed will have large stripes.
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Posted November 05, 2009 (08:21PM)
Yeah, I've heard about Cramer's confessed stock manipulation. He didn't even seem particularly embarrassed about his ethical and legal violations. But notice that he didn't just rely on buying and selling; he put out false information and manipulated analysts, which you can obviously see could affect stock prices favorably.
This, by the way, should give pause to those who listen to Cramer's advice. If that was how he made money at his hedge fund, then he may not actually be much of a stock picker. Furthermore, if he pulled manipulations like that, why should we believe that he's honest now? Maybe his show is just his latest scam. |
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