The Authoritative NSS Page

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I appreciate your comments. But the jargon and third-party involvement you bring to the discussion (other traders getting forced buy-ins) makes my head swim.

Option trading can be very simple (buy a put or call, sell a put or call), but when you expand it to hundreds of exotic strategies that have been studied and used for YEARS, the average trader's eyes gloss over. It's complicated.

i.e. you said this:

If you were to do a "buy-write" after an assignment against a short call position for a stock that was not on the Reg SHO list, there would be no violation.

Do you think the average trader understand that? Hell, I don't.

Joe Trader that buys and sells listed stocks and ETFs every now and then is not going to understand that.

Most people just read the headlines this week, and immediately go into "I told you Wall Street was corrupt" mode.

Mr. Naked Pennystock has been posting this optionsXpress case all over iHub as "proof" of naked shorting in their favorite pinksheets stock, which has no relation to this case at all.

Shame on them for not understanding. But who does?

People make big money and get paid big bucks developing ideas and executing these complex trades. There are huge commissions involved. It's big money.

And a lot of it ISN'T getting discussed because that would take away their edge.

My point in the above is this: Most people don't understand option trading. Even fewer understand exotic option strategies. I wish there were an easier way to explain this case.

Your comment that optionsXpress gave a larger client more time to close out a position does help explain. They even knew what they were doing was questionable, if not illegal, yet let it continue.

Whether the strategy was long or short shouldn't matter. Except it does, because POLITICALLY the SEC said they were going to prosecute "synthetic shorts."


Also:

Those that DO understand complex option strategies are talking with regulators and with the officials with the bourses where they are executing their trades because there is RISK involved.

Risk means losses for some and gains for others.

When the "wrong side" takes a loss, that's usually going to generate a call or complaint to regulators, and investigation risk grows.

IMO, most cases like this get attention from the regulator when an option writer takes a hit. They HATE lose. And laying off risk on others is their game.

I guarantee this is not the only case pending with the SEC on this type of "synthetic short" trade.