S&P 500 Futures

Large US hedge Funds are very short the S&P 500 futures….

These funds were shorting the futures to hedge their core long holding over the last 10 days.

The further the mkt dropped the more aggressive they got…..yesterday, the open interest rose by 115,000 contracts. At over 600,000 contract, this is the largest open interest in the S&P futures. (see Bloomberg charts below)

Should the mkt stabilize here and push upward, these contracts will HAVE to be covered….creating a significant torque to the upside.

Yea, what he said...LOL Can you break that down Barney Style so I and a few here can understand? Plus your link requires log-on which I'm not privy to. Thanks!

lol - sorry about that.

Try this:

Originally posted by 38181
Yea, what he said...LOL Can you break that down Barney Style so I and a few here can understand?

The S&P 500 market is probably going to poop all over itself tomorrow.

The ban on short selling ends at midnight tonight, so everything that's been building up for a month now is going to explode on the markets.

reply to post by anachryon


I read that too about short-selling. Financial apocalypse is here, and we all get a front-row seat. nifty.

Allowing nekid short selling is nuts, all they need to do is re-impliment the uptick rule. Why in hell they got rid of the uptick rule in July of 2007 (I believe) is beyond we. It even smacks of a good old fashion conspiracy.

JK

[edit on 8-10-2008 by leo123]

Here you go - Uptick Rule ends.

GONE!

reply to post by leo123


Yes, but do not the hedge funds and their bottom lines then suffer if they have to cover. If I'm understanding it right, the bet is that the S&P market will continue down, right. But how long were the bets? One month, etc? And who suffers if the market continues down, the S&P and peoples hard invested money?

Can someone send me a link that explains short selling? Are we selling Danny Divito or Smurfs or what?

Originally posted by TH3ON3
reply to post by leo123

 

Yes, but do not the hedge funds and their bottom lines then suffer if they have to cover. If I'm understanding it right, the bet is that the S&P market will continue down, right. But how long were the bets? One month, etc? And who suffers if the market continues down, the S&P and peoples hard invested money?

Their bottom line won't suffer as long as the market does not go above what they shorted the S&P 500 at.

However, if all hedge funds sense the decline is over they will buy back in their short S&P500 futures contract to close out their position and eliminate any risk if the market goes up.

However, with 600,000 short contracts outstanding, if they all start buying back in it will force the S&P500 futures contract to a premium over the value of the actual S&P500 stock. This will cause arbitrage people to sell the futures contract and buy the underlying stocks therefore locking in a spread this premium caused. Thus it will force up the price of stocks.

[edit on 8-10-2008 by leo123]

Originally posted by dingleberry77
Can someone send me a link that explains short selling? Are we selling Danny Divito or Smurfs or what?

Short Selling explanation

reply to post by leo123


Right, cool, thanks for that. That makes a lot more sense.

So how does the broker or person who owns the stock make money? If the stock goes up, the short seller must replace but how long could they hold out. Is there a time limit involved?


Second, why is the sec allowing SS even on downtick now. Wont that make the markets even more volatile and risky?

Thanks for the info...Found this article that explains it very well. looks like something I would enjoy since I'm always so doom and gloom about the markets.

Originally posted by TH3ON3
So how does the broker or person who owns the stock make money? If the stock goes up, the short seller must replace but how long could they hold out. Is there a time limit involved?


Second, why is the sec allowing SS even on downtick now. Wont that make the markets even more volatile and risky?

1) The person who owns the stock doesn't even know their stock is being borrowed - it must be in a markin account of course on debt. So as far as he is concerned its business as usual. My stock goes up I make money.

2) Don't ask me, I consider the practise absolutely insane by the SEC. In fact, as I pointed out about this even smack of your text book conspiracy it is such an irrational regulation.

JK

"Why in hell they got rid of the uptick rule in July of 2007 (I believe) is beyond we."
Why do you think?
Do you think the politicians responsible for removing it did it for any real purpose?
Other than to allow there buddies to manipulate the crap out of it?
I remember before this, the markets were different.
And ever since they have been massively manipulated like never before.

en.wikipedia.org...

The SEC eliminated the uptick rule on July 6, 2007.The elimination of the rule was preceded by a SEC order, placed on July 28, 2004, to create a one-year pilot temporarily suspending the uptick rule on select securities. The purpose of the suspension was so that the commission could study the effectiveness of the rule. The SEC's Office of Economic Analysis and academic researchers provided the SEC with analysis of the data obtained during the pilot. The consensus was against the uptick rule, with the commission concluding that the uptick rule "modestly reduced liquidity and does not appear necessary to prevent manipulation."

SEC is run by corporations is there any wonder they would find it doesn't "appear" necessary to prevent manipulation?

The rule was originally put in place to avoid the perpetration of a financial crime known as a bear raid. However, short sellers themselves viewed the rule as "largely symbolic" and having little actual effect on short selling
A bear raid is a type of stock market strategy, where a trader (or group of traders) attempts to force down the price of a stock to cover a short position. This can be done by spreading negative rumors about the target firm, which puts downward pressure on the share price. This may be a form of securities fraud. Alternatively, traders could take on large short positions themselves, with the large volume of selling causing the price to fall, making the strategy self perpetuating.

What are we seeing right now?

[edit on 8-10-2008 by Interestinggg]

Originally posted by Interestinggg
The elimination of the rule was preceded by a SEC order, placed on July 28, 2004, to create a one-year pilot temporarily suspending the uptick rule on select securities. The purpose of the suspension was so that the commission could study the effectiveness of the rule.

The result of their pilot project, now somw15/16 odd months old should be quite clear - it was a flaming disaster.

So why hasn't the uptick rule been reimplimented?

Very odd to me.

JK