4 ms·

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 m

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...
      - sprusemoose 6y ago
        but not buying options can be http://jamaica-gleaner.com/article/business/20200821/scotiabank-canada-fined-commodities-price-manipulation http://jamaica-gleaner.com/article/business/20200821/scotiab...
  - deleted 6y ago
    [deleted]
  - ivalm 6y ago
    Legally it depends on intent, which would be very hard to prove. Unless senior execs wrote emails saying “let’s buy option to manipulate the market” or colluded with other market participants, it is safe. However, it is not “always” safe.
  - Rury 6y ago
    Who cares if it is or isn't legal currently. Lots of things where once legal, which the majority of society came to deem as bad (slavery, child labor) - which we then came to make illegal. But the problem here isn't just simply buying stocks, or holding options. It's the repeated process of buying both a stock and its options at the same time by a whale - and it seemingly does allow for manipulation of stock price. As so, why shouldn't such a pattern of activity be made illegal?
    - gunshai 6y ago
      Ought vs Is, my friend. You are making a moral/ethical claim about how the world OUGHT be while he is making the distinction about how the world IS today. Some patterns are illegal by the way. However proof is still quite difficult to come by. For instance, it's market manipulation to place large orders continuously and then cancel those orders continuously. It's also market manipulation to place both LARGE buy and SELL orders at the same time in order to fake volume for a particular stock. However me as an individual or private entity can at any time go place an a LARGE as fuck order for what ever I want. In fact if you look back and study old stock floors ect. traders started to learn what the people at the large banks/intuitions looked like. When they saw them walk up with their stack of PHYSICAL orders, they'd try and step in front of them because they knew the market was about to move as a large order was about to be placed.
    - quickthrowman 6y ago
      Eventually the “manipulation” will push the price to a point where other actors sell, and then more people sell and the price corrects (see yesterday and today’s charts). Buying equities and options in large amounts is not market manipulation. There are lots of institutional actors placing large orders all the time.
      - Rury 6y ago
        >Eventually the “manipulation” will push the price to a point where other actors sell, and then more people sell and the price corrects (see yesterday and today’s charts). Not sure how this statement helps your argument. The same happens in pump and dumps. The people who artificially manipulated the price up in the first place sell in large, duping the latecomers out of their money, and the price corrects. >Buying equities and options in large amounts is not market manipulation. No it is not, but this isn't a simple matter of buying of equities and options. It's a pattern of repeatedly buying equities and options by one large party in a way which allows for potential manipulation. As so, even if such a pattern isn't illegal now, why shouldn't such a pattern be made illegal? Wash trades used to be legal before 1936, but we made them illegal for similar reasons...
  - astura 6y ago
    ?? I never claimed someone was ever penalized by the SEC for buying and holding call options, just that buying derivatives can be a crime if it's done for the purpose of market manipulation.
sanderjd 6y ago
I understand your surprise here, but just to note: lay people intuitively think that "stock manipulation" is a crime. This is because their retirement savings relies on stock prices being fairly stable due to attachment to actual business value. Intuitively, people that put that system at risk are doing something wrong, and things that are wrong should potentially be illegal. Essentially: most people intuitively think the stock market should be more heavily regulated than it actually is.
- deleted 6y ago
  [deleted]
- Der_Einzige 6y ago
  This is why I wish I had a pension instead of a 401k. Too bad that the people who still offer pensions are also paying a lot less on average (usually due to being government related) than companies offering 401ks do.
itsoktocry 6y ago
>Buying shares also raises the price of shares No it doesn't. Shares prices are falling today. People are selling. That means people are also buying. Every transaction has a buyer and a seller. Yet prices still fall.
- quickthrowman 6y ago
  Let me rephrase: Buying a huge volume of shares equivalent to SoftBanks option delta exposure would raise the share price of whatever underlying the options were for.
- gunshai 6y ago
  What he's saying is that there is only so much liquidity at a given price point. Given low enough liquidity even tiny volume purchases relative to the liquidity can increase the price of a share.
alextheparrot 6y ago
It depends on the context? Wash trades, for example, use only basic primitives but are regulated and we have seen SEC action over them.
- edoceo 6y ago
  Wash Trades: https://en.m.wikipedia.org/wiki/Wash_trade https://en.m.wikipedia.org/wiki/Wash_trade "investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity"

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...
    - sprusemoose 6y ago
      but not buying options can be http://jamaica-gleaner.com/article/business/20200821/scotiabank-canada-fined-commodities-price-manipulation http://jamaica-gleaner.com/article/business/20200821/scotiab...
- deleted 6y ago
  [deleted]
- ivalm 6y ago
  Legally it depends on intent, which would be very hard to prove. Unless senior execs wrote emails saying “let’s buy option to manipulate the market” or colluded with other market participants, it is safe. However, it is not “always” safe.
- Rury 6y ago
  Who cares if it is or isn't legal currently. Lots of things where once legal, which the majority of society came to deem as bad (slavery, child labor) - which we then came to make illegal. But the problem here isn't just simply buying stocks, or holding options. It's the repeated process of buying both a stock and its options at the same time by a whale - and it seemingly does allow for manipulation of stock price. As so, why shouldn't such a pattern of activity be made illegal?
  - gunshai 6y ago
    Ought vs Is, my friend. You are making a moral/ethical claim about how the world OUGHT be while he is making the distinction about how the world IS today. Some patterns are illegal by the way. However proof is still quite difficult to come by. For instance, it's market manipulation to place large orders continuously and then cancel those orders continuously. It's also market manipulation to place both LARGE buy and SELL orders at the same time in order to fake volume for a particular stock. However me as an individual or private entity can at any time go place an a LARGE as fuck order for what ever I want. In fact if you look back and study old stock floors ect. traders started to learn what the people at the large banks/intuitions looked like. When they saw them walk up with their stack of PHYSICAL orders, they'd try and step in front of them because they knew the market was about to move as a large order was about to be placed.
  - quickthrowman 6y ago
    Eventually the “manipulation” will push the price to a point where other actors sell, and then more people sell and the price corrects (see yesterday and today’s charts). Buying equities and options in large amounts is not market manipulation. There are lots of institutional actors placing large orders all the time.
    - Rury 6y ago
      >Eventually the “manipulation” will push the price to a point where other actors sell, and then more people sell and the price corrects (see yesterday and today’s charts). Not sure how this statement helps your argument. The same happens in pump and dumps. The people who artificially manipulated the price up in the first place sell in large, duping the latecomers out of their money, and the price corrects. >Buying equities and options in large amounts is not market manipulation. No it is not, but this isn't a simple matter of buying of equities and options. It's a pattern of repeatedly buying equities and options by one large party in a way which allows for potential manipulation. As so, even if such a pattern isn't illegal now, why shouldn't such a pattern be made illegal? Wash trades used to be legal before 1936, but we made them illegal for similar reasons...
- astura 6y ago
  ?? I never claimed someone was ever penalized by the SEC for buying and holding call options, just that buying derivatives can be a crime if it's done for the purpose of market manipulation.

sanderjd 6y ago

I understand your surprise here, but just to note: lay people intuitively think that "stock manipulation" is a crime. This is because their retirement savings relies on stock prices being fairly stable due to attachment to actual business value. Intuitively, people that put that system at risk are doing something wrong, and things that are wrong should potentially be illegal. Essentially: most people intuitively think the stock market should be more heavily regulated than it actually is.

deleted 6y ago
[deleted]
Der_Einzige 6y ago
This is why I wish I had a pension instead of a 401k. Too bad that the people who still offer pensions are also paying a lot less on average (usually due to being government related) than companies offering 401ks do.

itsoktocry 6y ago

>Buying shares also raises the price of shares No it doesn't. Shares prices are falling today. People are selling. That means people are also buying. Every transaction has a buyer and a seller. Yet prices still fall.

quickthrowman 6y ago
Let me rephrase: Buying a huge volume of shares equivalent to SoftBanks option delta exposure would raise the share price of whatever underlying the options were for.
gunshai 6y ago
What he's saying is that there is only so much liquidity at a given price point. Given low enough liquidity even tiny volume purchases relative to the liquidity can increase the price of a share.

alextheparrot 6y ago

It depends on the context? Wash trades, for example, use only basic primitives but are regulated and we have seen SEC action over them.

edoceo 6y ago
Wash Trades: https://en.m.wikipedia.org/wiki/Wash_trade https://en.m.wikipedia.org/wiki/Wash_trade "investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity"