Investing in 2008 stock market crash 'Put options'

This is a bit of a research question about 'PUT' options.

The first I heard about these put options was after 911 when I remember reading that certain people made huge amounts of money from backing the crash of individual market stocks.

Link to above note

Then (I think) I remember around September last year an individual backed the entire market to crash, he had millions on it, but it had to happen within about thirty days, as far as I know money was lost on this gamble.

Link to above note

Now the markets are taking a serious slump, does anyone have information/can anyone find information on any individuals backing this crash?

Could that information reveal a motive or predict a future result?

ed:sp

[edit on 23-1-2008 by xSMOKING_GUNx]

I also heard that when stocks are devalued on the NASDAQ the money just disappears (no links, just what I remember hearing, further information welcomed). I guess I hadn't really considered where it went before.

Could this be a project to pull money from the private corporation sector and raise the financial profile of the tax paying public/government standings?

I don't know about put options but a short sale is one way to make money when stocks plummet. It works like this, I go and find someone that is willing to let me "borrow" some shares of any given stock and replace them at a later date. If it is available I get that stock and sell it immediately with the hopes that it goes down. If the price falls I buy the amount of shares back at a lower price to replace the ones I borrowed. So basically I borrowed something and sold it, the price of it went down, I bought it back and replaced what I borrowed pocketing the difference. I put a video up in this thread which is not really related but it is at the bottom of the page and probably explaines it better than I. Link to thread with vid

Thanks shizzle.

I see that a short sale and put options are very similar in ethics.

I have scoured google with multiple key words to see who can possibly be making money out of this situation, but have had no luck.

Is there somewhere I can find (in simple form) who the big players are, and public information on their movements?

reply to post by xSMOKING_GUNx


Well, now that I have the time I would like to discuss this further. Just for a little recap let's talk about what put options and short sales and the difference.

A put option works like this, say there is a stock at 65$ a share. You think for whatever reason it is going to drop substantially. You come to me and we reach an agreement that says you have the option (not the obligation) to sell me 100 shares at $60 per share within an alloted time frame (usually 6 months or a year). If you exercise that option, I, the seller of this contract is obligated to buy those shares at the agreed price of $60 regardless of what the actual value is. For this contract I charge you the difference $5 a share in interest.

If the price per share falls to say $40 a share before the contract expiration. You the holder of the option can buy those at $40 and sell them to me at $60.
So, you paid me $500 for the option bought the 100 shares for $4000 and sold them to me at $6000 and I was obligated by the contract to buy them at that price. Long story short you made $1500 off the transaction.

Or lets say the price did not fall below the $60 per share price by the end of the contract. You will not exercise your option to sell me the shares at $60 because you can not replace them for less than that. I keep the $500 you paid me for the contract and you loose $500 dollars.

Now on to the short sales. You feel that the price of a particular stock is going to drop by a substantial amount. You go find someone who is willing to loan you 100 shares of that stock. You turn around and sell them to me for the current price they are selling at, we'll say $65 a share. I give you $6500 and I now own the shares. If the price drops to $40 per in the alloted time you agreed to return the shares to who you borrowed them from. You buy 100 shares for $4000 and return them, making $2000 out of the transaction.

But, here is where the put option and short sale differ. Lets say the price of the stock rose to $75 a share with the short sale you are obligated to replace the borrowed shares regardless of what the market price is. So if the price went up to $75 a share you just lost $1000.

I personally feel that you will have little luck if any finding out who did what in either of these categories. But if you are feeling ambitious and have a couple months+ of your life with nothing better to do you might start by looking into U.S. Securities and Exchange Commission reports, they don't really do their job they just hand out slap on the wrist fines to people who have made billions manipulating the market. There is also the The Depository Trust & Clearing Corporation, I don't even know if they have reports available to the public but it might be worth looking into. The DTCC in the "clearinghouse" behind wall street. Like when large sums of money (not actual money but numbers over a wire) are transfered between banks it goes through a clearinghouse. The DTCC handles the wire transactions between large brokers and wall street. Now if you want to know just how much of a role they play here is a number for you $1.4 quadrillion. Thats not a misprint thats 20 times the WORLD Gross domestic product and the amount of transactions the DTCC handled last year.

If I were you and you really want to look into this I would look into whats called "Index funds". Index funds are basically a mutual fund that has investments in so many parts of the market that the share price follows dollar for dollar with the DJA. For example right now the dow is at 4,150.35 which means each share is $4150.35 if it drops 100 points the share price drops $100. If there is a place for big investors to make a lot of money it would be by putting put options on these index funds. If the market drops 500 thats $500 per share to be made. Hope it helps but the stock market is anything but transparent unless regulatory commissions get involved and still then not very. Rich people don't get rich by making careless mistakes, and they cover their tracks quite well.

[edit on 073131p://333 by shizzle5150]

reply to post by shizzle5150


My outlook is quite simple when it comes to the stock markets, I will be the first to admit it.

I think I understand the math, although I still have a couple of questions, if you have the time.

With 'Put option', Is there a compulsory execution if an initial offer to buy is made on the stocks?, and also, Is there an obligation to make the return transaction regardless of the time the gambler chooses, during the agreed contract period?

And; with 'Short sales', Am I correct in thinking, that the person lending you the shares doesn't gain anything by lending them to you, unless the gambler is wrong with the assumption that the stocks will devalue?.

In which, do all stocks basically become short sales because they are all held by second/third,etc- party's?

I mean, I would gladly lend you my shares if I can get a cut of what you are doing with them, especially if they 'do not' rise in value.

That would be a safe bet.

Thank you for your further advice, I appreciate your time and links, I am not sure if I will delve in to them too deep tonight as my figure's are not so good when I am tiered, especially when were talking in quadrillions, but I will certainly take a look.

I am hoping I will have time to get back to this tomorrow.

Regards

I am sorry but if you express a sincere interest in what is going on in the market I can not feed you information. I don't mean that in a bad way I just mean that if it means that much to you you can research and find the answers to any question you have asked me. I just put forth the basics. With ease this thread could be 100 pages long with the questions you have asked alone. Wikipedia does a good job of giving examples . Please don't take this as being abrasive but if you really want to see what is happening in the market the only way is through your own research. I will say this though, the more money behind anything the more it sways the market and the more can be made through manipulation. In a sense yes all stock "small people" buy is really a short sale, and the big brokers are making money off that. Please watch the video in its entirety in the link I gave and I think you will understand better than I can explain.