Replies to post #598425 on Zeev's Turnips Patch-No Politics (ZEEV)

[WinLoseOrDraw]

"Requires" is a term coined by the options MMs. Who says the transaction "Requires" the ability to naked short to build a hedge?

Because that's how options work. Without the ability to short the underlying at will, you cannot construct the offsetting synthetic equivalent. If you can't protect your own backside, you won't take on a position.

I, as a long buyer, am under the impression that I am buying actual shares of the company.

Shares are just paper. They're just another derivative. The easiest to understand derivative, but a derivative none the less.

We are ALL derivatives traders. That should be obvious to everyone by now.

The options MM should have to borrow the shares to hedge with, just like everyone else.

You can do this (in theory, anyway). It would effectively kill the options market, which in turn would do serious damage to equity markets. The net effect would be even more trading would vanish into the OTC black hole, and common stock would become even less relevant than it already is.

I hope you understand that while stock markets are the front page news, in financial terms they are by far the least important part of the overall financial puzzle.

[langostino]

""Requires" the ability to naked short to build a hedge?"


"Who says the transaction "Requires" the ability to naked short to build a hedge?"

1. There would be no market makers and no markets if MMs making markets in options could not simultaneously execute market neutral transactions whenever there is no one to take the other side of the trade and they're forced to step in. It's clear you lack even a rudimentary understanding of market making and how markets function. It's one thing to argue with the basis of knowledge. It's something else entirely to argue when you've made no effort to learn and understand what the heck you're talking about.

2. I am terribly sorry if you've gotten yourself on the long side of Novastar and Overstock, two of the most poorly managed companies on the planet. Those companies aren't suffering because they're heavily shorted, they're heavily shorted because they're both absolute pieces of trash and are highly likely candidates to GTZ.