[charliebrownout]

Okay, I've heard a lot about nasty short sellers and people "speculating"

My question, for those learned folks among us, is short selling the same as speculation and IF SO...given there's this temporary ban on short selling...why is oil back up over $100 and (it would seem) going up?

Kick me in the head if this is a stupid question (ie not just because it feels good, please have a valid reason if you'd like to kick me). I didn't take economics--ever. Just wanted to ask.

[Delphis]

There are no stupid questions CBOut and one of the plausible reasons oil was up is that the commodities speculators are skittish about the SEC order. On another, albeit not less important note, the recent "rally" or "rebound" of the entire market could very well be the same impetus.

I think you will see that once the short positions are covered, the smoke will clear, and the madness will begin again. Short selling is a viable hedging mechanism that has helped to stabilize our market as far back as one can remember.

Thanks for the thread, this should be a good one...

Cheers!

[Dreamtwister]

My admittedly unschooled understanding of the process works something like this:

Let's say you know a guy, Larry, who wants to buy 100 shares of "Acme Widgets". He's willing to buy them off of you for $10 each. Unfortunately, you don't actually own any shares in Acme Widgets, so you go to "Monster Investments Inc" and borrow 100 shares of Acme from them (for a small fee, of course), on your promise to return those shares to MII by September 30th.

So you take your borrowed shares, and sell them to Larry and pocket $1000. Now by doing this, you are speculating that the value of Acme Widgets is about to fall. You sell the shares to Larry for $10, knowing damn well that you will have to buy them back next Tuesday. If the price for Acme shares is $11 on the 30th, you've lost money. But if the price is $9, you make money.

I think the reason this is making the price of oil rise (assuming they are related at all), is that since nobody can short any more, there's all kinds of extra money floating around in the system. Naturally, investors hate stationary money, so they invest it in whatever they can. Oil, gold, t-bills, vibrators...whatever.

[charliebrownout]

$this->bbcode_second_pass_quote('Delphis', 'T')here are no stupid questions CBOut and one of the plausible reasons oil was up is that the commodities speculators are skittish about the SEC order. On another, albeit not less important note, the recent "rally" or "rebound" of the entire market could very well be the same impetus.

I think you will see that once the short positions are covered, the smoke will clear, and the madness will begin again. Short selling is a viable hedging mechanism that has helped to stabilize our market as far back as one can remember.

Thanks for the thread, this should be a good one...

Cheers!

[charliebrownout]

$this->bbcode_second_pass_quote('Dreamtwister', 'M')y admittedly unschooled understanding of the process works something like this:

Let's say you know a guy, Larry, who wants to buy 100 shares of "Acme Widgets". He's willing to buy them off of you for $10 each. Unfortunately, you don't actually own any shares in Acme Widgets, so you go to "Monster Investments Inc" and borrow 100 shares of Acme from them (for a small fee, of course), on your promise to return those shares to MII by September 30th.

So you take your borrowed shares, and sell them to Larry and pocket $1000. Now by doing this, you are speculating that the value of Acme Widgets is about to fall. You sell the shares to Larry for $10, knowing damn well that you will have to buy them back next Tuesday. If the price for Acme shares is $11 on the 30th, you've lost money. But if the price is $9, you make money.

I think the reason this is making the price of oil rise (assuming they are related at all), is that since nobody can short any more, there's all kinds of extra money floating around in the system. Naturally, investors hate stationary money, so they invest it in whatever they can. Oil, gold, t-bills, vibrators...whatever.

[Dreamtwister]

$this->bbcode_second_pass_quote('charliebrownout', 'W')ow. And that's all legal?! You're borrowing something from someone to sell it to someone else to buy it back (hoping the other guy lost money in the process) so you can return it to the person you borrowed it from.

No wonder Wall St. is a mess....

[RdSnt]

Ah, but the explanation isn't complete without "naked shorts"

That's when you sell someone shares you don't own at all, but are betting that you can buy them cheaper later.

[charliebrownout]

$this->bbcode_second_pass_quote('Dreamtwister', '')$this->bbcode_second_pass_quote('charliebrownout', 'W')ow. And that's all legal?! You're borrowing something from someone to sell it to someone else to buy it back (hoping the other guy lost money in the process) so you can return it to the person you borrowed it from.

No wonder Wall St. is a mess....

[smallpoxgirl]

$this->bbcode_second_pass_quote('charliebrownout', 'W')ow. And that's all legal?! You're borrowing something from someone to sell it to someone else to buy it back (hoping the other guy lost money in the process) so you can return it to the person you borrowed it from.

[Dreamtwister]

$this->bbcode_second_pass_quote('charliebrownout', 'N')o wonder the BS seems ten feet thick. It's just the news of one crooked move after another and everyone playing games to try and screw the other guy.

In all of this, I can't help wondering if we wouldn't just be better off w/o Wall Street or the Central Bank or any form of the two.

I mean, it just seems like institutionalized book cookery to me.

[charliebrownout]

$this->bbcode_second_pass_quote('RdSnt', 'A')h, but the explanation isn't complete without "naked shorts"

That's when you sell someone shares you don't own at all, but are betting that you can buy them cheaper later.

[smallpoxgirl]

$this->bbcode_second_pass_quote('RdSnt', 'A')h, but the explanation isn't complete without "naked shorts"

[seldom_seen]

The problem here is not short selling...the problem is that the SEC is rigging the market to protect Goldman Sachs. Their stock by the way closed up 20% today.

Imagine if you were one of the insiders that knew about this? You probably had pretty good day today.

The house always wins.

[Dreamtwister]

$this->bbcode_second_pass_quote('charliebrownout', 'W')hy aren't people rioting in the streets?

[charliebrownout]

$this->bbcode_second_pass_quote('Dreamtwister', '
')
I thought you said you didn't understand? Sounds to me like you understand the situation perfectly.

[Cashmere]

Speculation is investment to make profit. Pure and simple. The thing in which you invest - tullip bulbs, houses, stocks, oil - is irrelevant.

In the oil markets, there are 2 types of players - hedgers and speculators.

Hedgers are businesses that use oil. They buy futures contracts and options to protect themselves against volatility. If you're a petrochemical company, you might want to buy future contracts going forward 2 years so that you know exactly what your oil is going to cost. Southwest famously did this right before the first run up in oil. If you're an oil producer, like the KSA, you might sell futures contracts to protect yourself against a drop in price of oil.


Speculators in oil invest to make money. Period. They are not protecting themselves against a run up in price or a fall in price.

[Concerned]

Short and Long are opposite ends of the same trade.

It's called FUTURES because you buy or sell today at a FUTURE price.

1. Short is selling. I am selling e.g oil at an agreed price today for some time in the future.

1.A. If oil goes up, I have made a loss and have to cover the difference between what I agreed to sell the oil 3 months ago and what it's price is today.

1.B If oil goes down, I have made a profit on the difference between what I agreed to sell oil at 3 months ago and its current lower price today. (Because 2 below agreed to buy the same oil from me 3 months ago)

2. Long is buying. I am buying e.g. oil at an agreed price today for some time in the future.

2.A. If oil goes up, I have made a profit on the difference between what I agreed to buy the oil at 3 months ago and it's current price today.

2.B. If oil goes down, I have made a loss and have to pay the original contract price I agreed to 3 months ago even though it might be cheaper to buy on the spot market today at reduced prices.

1 & 2 are opposite ends of the same trade. It is a Zero sum game. These instruments can be used as insurance to protect an investment portfolio or airline fuel purchases. It is used for example by companies buying large capital items. Say you want to buy 100 million dollars of capital machinery from Germany in six months time, you can go into the futures market and buy currency (Euro) Today and know exactly how much Euro dollars you will be paying for that purchase, irrespective if the currency exchange rates go up or down.

[Cashmere]

$this->bbcode_second_pass_quote('Concerned', 'S')hort and Long are opposite ends of the same trade.

It's called FUTURES because you buy or sell today at a FUTURE price.

[Concerned]

$this->bbcode_second_pass_quote('Cashmere', '')$this->bbcode_second_pass_quote('Concerned', 'S')hort and Long are opposite ends of the same trade.

It's called FUTURES because you buy or sell today at a FUTURE price.

[Delphis]

$this->bbcode_second_pass_quote('charliebrownout', '')$this->bbcode_second_pass_quote('Dreamtwister', '
')
I thought you said you didn't understand? Sounds to me like you understand the situation perfectly.