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Yes, ETF won't have a short covering rally that is an due to lack of availability of the position. What you failed to explain is why this is a bad thing. (It
by yxhuvud 16y ago
Yes, ETF won't have a short covering rally that is an due to lack of availability of the position.
What you failed to explain is why this is a bad thing.
(It can still have short covering rallies if the price move too much.)
(Also, they can definitely get stuck with more shorts than they can fill. It is called going broke..)
- borism 16y agoyou either haven't read the article or totally missed it's point (as several other commenters here)
- cynicalkane 16y agoWe're trying to figure out if the article has a point at all. Saying "you missed the point" is not helpful.
- borism 16y agoNo, we're trying to figure out who has read it and got the point. If you fail see the point in the article and risks it uncovers, then there's nothing to discuss really...
- mattmaroon 16y agoThe point is a normal stock normally has shares equal to 1.x on the market due to short selling, and the x is low. An ETF can have shares equal to 12x. The fact that you can create shares is nice, but it still falls on the counterparty to be able to fund them, and as we saw in the recent meltdown that's not safe.
- mattmaroon 16y agoWell the inability to get squeezed covering causes people to gamble on it excessively. We're talking instead of people naked shorting a few percent of the shares, they're naked shorting a few hundred percent. This creates immense counterparty risk for the people who purchase the shares and they don't even know it. The same counterparty risk is inherent to all naked shorts. What's unique about the ETF is the magnitude. I don't think the article explained that very well. It's possible that the magnitude involved could be destabilizing to the economy.