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> So the naked shorts make Company B look less attractive which drives the price down further It's not even a matter of attractiveness (although false rumors w
by Xichekolas 17y ago
> So the naked shorts make Company B look less attractive which drives the price down further
It's not even a matter of attractiveness (although false rumors would definitely fall in that category).
If you have more people trying to buy a stock than those willing to sell (at the current price), the price will rise until more people are willing to sell or fewer people are willing to buy.
Likewise, if more people are looking to sell (at the current price) than to buy, the price will go down until people are either no longer willing to sell, or more people want to buy.
Naked shorting creates excess supply. You suddenly have A LOT more 'shares' being sold, without a corresponding increase in buyers.
As such, the share price declines. Couple this with nasty rumors, and the declining share price doesn't entice any new buyers (which is normally the case when something gets cheap). As the price caves further, and the rumors persist, existing owners start to worry, and decide to get out before it gets worse. Now the downward spiral is in full force. Everyone wants off the sinking ship.
- rwmj 17y ago> As the price caves further, and the rumors persist, existing owners start to worry, and decide to get out before it gets worse. Now the downward spiral is in full force. Everyone wants off the sinking ship. Can you explain how the company goes out of business as a result of this? Suppose the company is basically sound. Through stock manipulation its share price goes down to 1 cent. But the company continues doing whatever it does (and can purchase its own shares back at a bargain price to boot).
- Xichekolas 17y agoWell, if the company were basically sound, it wouldn't go out of business... although it'd be mighty ripe for a hostile takeover. But Bear, Lehman, and numerous small companies that are usually the victim of this tactic, were leveraged to the gills, and were full of nasty liabilities. The temporary crisis of confidence caused by a falling stock price led creditors to start fleeing as well, preventing Bear from rolling over it's daily debt. As they point out in the article, Bear was highly dependent on overnight lending at that point. Also, making money via naked shorting doesn't require the company to die. It merely requires the share price to fall.
- pbhjpbhj 17y agoI'll guess ;0)> Someone owns the company for a few hundred dollars which was yesterday valued at tens of millions. The company has assets worth millions [of currency], they can wait for next years dividends or liquidate ... what to do ...