Re: [Pen-l] If they don't fix it, there just won't be an options market on Monday

[Shane Mage <shmage@xxxxxxxxxxxx>]

On Sep 20, 2008, at 11:47 PM, Sabri Oncu wrote:

> Now, think about this: if you are "hedging" a call option on a stock
> that you bought, you should be able to short the underlying! What
> happens if you cannot?


That is the mirror image of what this panic-induced stupidity does.   
The dealer who sells calls can still hedge by taking a long position.   
It is the dealer who cannot short who cannot now hedge sales of puts.   
The increased risk explodes the bid/asked spread, just as the article  
states.  Since calls are used by *buyers* to hedge short positions,  
the premium on calls should (but probably won't) decrease. It is the  
premium on puts that surges, making it much harder to hedge *long*  
commitments.  How this is supposed to stabilize the market eludes me.

Shane Mage

"Thunderbolt steers all things...it consents and does not consent to  
be called Zeus."

Herakleitos of Ephesos



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