Did the FED purposefully target shorts last week?

I've been very interested in markets here lately. It's probably been my favorite topic recently,with the volatility of markets worldwide, the subprime fallouts, and recent FED action, there are lots of things to talk about. Aside from the economics forum in PTS there is really nowhere specific to put this discussion so i'm gonna start it here.

Disclosure: I do invest, but I haven't grown the cojones (risk tolerance) to short anything yet, and doubt that I ever will. If you don't know the difference between a put and a call or what "short" and "long" mean here is a good place to start biz.yahoo.com.... I tend to invest in stock that pay dividends and have growth potential. Also when you "short" something there is limited profit potential with unlimited risk of loss potential. So you can see it takes some brass ones to be short.

This past Friday the FED cut the "discount rate" on the same day as options expiration. This turned what could have been a very nasty day in the market into a mild rally. Options can be traded up until market close the day before the day of expiration (in this case Thur. Aug 16) options must be exercised by close on the day of expiration (Fri. Aug 17). Many people reading the tea leaves had "short" bets that the market or particular stocks would go down. The past couple of weeks have been the most volatile and confusing time in my (admitedly short) trading lifetime. The timing of the FED's actions left those with "short" bets unable to cover(by buying offsetting options) or trade out of their "short" bets. I am admittedly still a novice in the investing game, but this move seems to me to be purposely punitive to anyone who is willing to bet against the market. I'm sure that lots of "shorts" were either hit hard or ruined by the FED's actions this past friday. Is the FED trying to say don't dare bet against this market or we will act to ruin you?

Like I said, I'm more interested in equities I expect to go up and pay a dividend (you could call me a "long" if not a bull). However, I do like to hear what the "shorts" have to say. I know that they play an important role in the market. They tend to research better and often bring things to my attention that I haven't thought of, that keep me from making a bad investment decision. Will the FED's recent actions keep the "shorts" from acting normally, thereby keeping scepticism out of the markets and causing another "bubble" that can only lead to an eventual crash?

As in all things financial I could be wrong.


[edit on 21-8-2007 by jefwane]