6 ms·

This is a crime, right?

xenospn 6y ago
I don't see how. The people buying the shares are not related to the market makers so as far as I can tell there's nothing illegal about that.
itsoktocry 6y ago
>This is a crime, right? Good question. On one hand, it's purely mechanical; it just works that way. On the other, it's hard to imagine doing it deliberately wouldn't be considered manipulation.
- corin_ 6y ago
  The purpose of buying call options is to to make a profit. It's hard to imagine that buying them and doing nothing other than buying them could be considered illegal. That's not manipulating the system any more than Buffet manipulates the system every time he buys stock (by also sending out the message that he thinks the stock is worth buying, just because he bought it without even needing to say anything about it).
  - mumblemumble 6y ago
    It would come down to intent. If the intent of buying a lot of options is, "I want a big position," or, "I want to hedge a big position," sure, that's probably fine. If the intent is, "I want to influence the market in some way," not so much.
    - pfortuny 6y ago
      As long as there is no inside information, buying or selling should be perfectly legal, if done inside the legal limits.
      - mumblemumble 6y ago
        That last "if" is the crux. Intent is a huge factor in what is and is not considered legal market behavior. For example, consider banging the close. Buying lots of futures at a certain time of day is not illegal in and of itself. But it's quite illegal if regulators show that your purpose in doing so was to influence the settlement price of some other asset in which you hold a position.
        WrtCdEvrydy 6y ago
        Wouldn't banging the close be priced into the market? Can you leverage buying a lot of calls or puts into making profit for yourself?
        tw600040 6y ago
        How are they going to prove intent?
        mumblemumble 6y ago
        It tends to involve things like subpoenas and depositions.
      - valuearb 6y ago
        Trading on inside information shouldn't be illegal either, it actually benefits even market participants who don’t have access to it.
        oarsinsync 6y ago
        > it actually benefits even market participants who don’t have access to it How?
        cmwelsh 6y ago
        I think he means that in technical analysis, they trade based on price action. Thus, insider trading gives you a peek into something that the fundamentals haven’t revealed yet (the price will change to reflect the secret news).
    - tw600040 6y ago
      Can't imagine any way one can prove intent one way or another here..
      - deleted 6y ago
        [deleted]
  - itsoktocry 6y ago
    >It's hard to imagine that buying them and doing nothing other than buying them could be considered illegal. In the purest sense, sure. I bet there will be more to this story, and I think if insiders or associated holding companies are found to be doing so, it's at least a grey area.
  - pmiller2 6y ago
    The sheer magnitude of it is what makes it seem like a pump and dump, however. The mechanics are broadly similar: send a signal that should cause people to bid up securities you own, then drop the bottom out by selling when the price goes up enough. I’m not saying it’s illegal per se, but financial misdeeds don’t tend to get punished in the US, unless the victims are wealthy enough. See, for instance, the global financial crisis of 2008 vs Bernie Madoff.
- deleted 6y ago
  [deleted]
quickthrowman 6y ago
Why would buying derivatives be a crime? That doesn’t make any sense. If I buy 10 calls, the MM has to hedge. If SoftBank buys 100,000 calls, they just hedge more. How do you figure this is in any way remotely illegal? Buying shares also raises the price of shares, should that be illegal too?
- astura 6y ago
  Well, market manipulation is illegal. I don't know enough about finance to know if this sort of activity is market manipulation or not though. There's a bunch of examples here; https://en.wikipedia.org/wiki/Market_manipulation https://en.wikipedia.org/wiki/Market_manipulation The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security".
  - quickthrowman 6y ago
    > I don’t know enough... Well, I do. Buying and holding call options is not market manipulation, full stop. Please provide an example of someone being penalized by the SEC for buying and holding call options without using insider information. You won’t, because buying call options is not market manipulation. Is it market manipulation when Buffett announces BH bought shares of a company and then the shares skyrocket?
    - pmiller2 6y ago
      Part of the difference here is that BH is legally obligated to disclose when they buy shares of companies. At least, they are under certain circumstances, which I can’t remember off the top of my head. You can’t punish someone for something they’re legally obligated to do, because one can’t be legally obligated to commit a crime.
      - quickthrowman 6y ago
        True, they are obligated to disclose their positions in a quarterly report. That doesn’t change the fact that buying and holding options is not illegal...

I don't see how. The people buying the shares are not related to the market makers so as far as I can tell there's nothing illegal about that.

itsoktocry 6y ago

>This is a crime, right? Good question. On one hand, it's purely mechanical; it just works that way. On the other, it's hard to imagine doing it deliberately wouldn't be considered manipulation.

corin_ 6y ago
The purpose of buying call options is to to make a profit. It's hard to imagine that buying them and doing nothing other than buying them could be considered illegal. That's not manipulating the system any more than Buffet manipulates the system every time he buys stock (by also sending out the message that he thinks the stock is worth buying, just because he bought it without even needing to say anything about it).
- mumblemumble 6y ago
  It would come down to intent. If the intent of buying a lot of options is, "I want a big position," or, "I want to hedge a big position," sure, that's probably fine. If the intent is, "I want to influence the market in some way," not so much.
  - pfortuny 6y ago
    As long as there is no inside information, buying or selling should be perfectly legal, if done inside the legal limits.
    - mumblemumble 6y ago
      That last "if" is the crux. Intent is a huge factor in what is and is not considered legal market behavior. For example, consider banging the close. Buying lots of futures at a certain time of day is not illegal in and of itself. But it's quite illegal if regulators show that your purpose in doing so was to influence the settlement price of some other asset in which you hold a position.
      - WrtCdEvrydy 6y ago
        Wouldn't banging the close be priced into the market? Can you leverage buying a lot of calls or puts into making profit for yourself?
      - tw600040 6y ago
        How are they going to prove intent?
        mumblemumble 6y ago
        It tends to involve things like subpoenas and depositions.
    - valuearb 6y ago
      Trading on inside information shouldn't be illegal either, it actually benefits even market participants who don’t have access to it.
      - oarsinsync 6y ago
        > it actually benefits even market participants who don’t have access to it How?
        cmwelsh 6y ago
        I think he means that in technical analysis, they trade based on price action. Thus, insider trading gives you a peek into something that the fundamentals haven’t revealed yet (the price will change to reflect the secret news).
  - tw600040 6y ago
    Can't imagine any way one can prove intent one way or another here..
    - deleted 6y ago
      [deleted]
- itsoktocry 6y ago
  >It's hard to imagine that buying them and doing nothing other than buying them could be considered illegal. In the purest sense, sure. I bet there will be more to this story, and I think if insiders or associated holding companies are found to be doing so, it's at least a grey area.
- pmiller2 6y ago
  The sheer magnitude of it is what makes it seem like a pump and dump, however. The mechanics are broadly similar: send a signal that should cause people to bid up securities you own, then drop the bottom out by selling when the price goes up enough. I’m not saying it’s illegal per se, but financial misdeeds don’t tend to get punished in the US, unless the victims are wealthy enough. See, for instance, the global financial crisis of 2008 vs Bernie Madoff.
deleted 6y ago
[deleted]

quickthrowman 6y ago

Why would buying derivatives be a crime? That doesn’t make any sense. If I buy 10 calls, the MM has to hedge. If SoftBank buys 100,000 calls, they just hedge more. How do you figure this is in any way remotely illegal? Buying shares also raises the price of shares, should that be illegal too?

astura 6y ago
Well, market manipulation is illegal. I don't know enough about finance to know if this sort of activity is market manipulation or not though. There's a bunch of examples here; https://en.wikipedia.org/wiki/Market_manipulation https://en.wikipedia.org/wiki/Market_manipulation The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security".
- quickthrowman 6y ago
  > I don’t know enough... Well, I do. Buying and holding call options is not market manipulation, full stop. Please provide an example of someone being penalized by the SEC for buying and holding call options without using insider information. You won’t, because buying call options is not market manipulation. Is it market manipulation when Buffett announces BH bought shares of a company and then the shares skyrocket?
  - pmiller2 6y ago
    Part of the difference here is that BH is legally obligated to disclose when they buy shares of companies. At least, they are under certain circumstances, which I can’t remember off the top of my head. You can’t punish someone for something they’re legally obligated to do, because one can’t be legally obligated to commit a crime.
    - quickthrowman 6y ago
      True, they are obligated to disclose their positions in a quarterly report. That doesn’t change the fact that buying and holding options is not illegal...