My depth of stock trading stops at the buy low sell high level. Can someone explain a little more if you have time? What would have happened to those trades if splunk had went down 20%?
The only way the buyer could make a profit would be for Splunk to go higher than $127 and if it went significantly higher, they'd stand to make an eye-watering return-on-investment multiple in one day. Which is what happens.
It would be suspicious if this turns out to be a speculative trader making a one-off transaction.
Calls are the right to buy at $127 - the shares received can then be sold at market price.
Puts are the right to sell at $127 - the short position can then be closed by buying at market price.
This was insider trading.
Or let’s say I was short the stock and wanted to hedge during a volatile FOMC period.
Scalping your gamma?
Feels like the stock market is just a bunch of jargon, subterfuge and financial sleight of hand. Like we learned nothing from 2008, and just created financial 'products' mechanisms and gambits out of thin air.
Stock shorting has got to be one of the most pants-on-head stupid things I've ever heard.
Well, next to gamma scalping.
Here, what they're doing is establishing a position which will make money if the stock moves either direction out of a narrow band. If you believe there's going to be a big industry upset, but don't know whether it will hurt or harm a specific player, you might enter this position. In turn, the overall market volatility is reduced and liquidity is added by your information being added to the market.
> Stock shorting has got to be one of the most pants-on-head stupid things I've ever heard.
All kinds of simple, legitimate reasons to short stocks. E.g. you are excessively exposed to that company's welfare for some reason (stock options, they're an important vendor, they're a big component in a mutual fund you own but you'd rather not own their stock, etc)-- you can take an opposite position by shorting. Or, here, you can use it to offset an option that moves in the opposite direction.
> Like we learned nothing from 2008, and just created financial 'products' mechanisms and gambits out of thin air.
This isn't too much like the house of cards from 2008. These types of strategies are not new; offsetting short positions by writing or buying options was in frequent use in the 1970s, if not before. Option use to profit from volatility (or hedge volatility) dates back more than 2000 years.
I'm not a big fan of esoteric, complicated financial schemes, or in creating options and financialized products for everything (e.g. cap and trade)... or situations where market players profit from privileged access to marketplaces (e.g. HFT). But the things you name are not any of these.
This is literally every industry. Do you think the average trader can understand the majority of discussions on HN w/o any domain experience? The jargon exists for a reason.
> Like we learned nothing from 2008, and just created financial 'products' mechanisms and gambits out of thin air.
The financial engineering issues in 2008 were fueled by other issues: simply we had the government suppressing true borrowing costs and fueling a housing bubble under socially progressive cover. These moves almost universally end in disaster historically. The "out of thin air" products I presume you're referring to all had/have legitimate use-cases: the problem is that nobody bothered to do proper risk management because the US Government was fanning the flames in one direction.
> Stock shorting has got to be one of the most pants-on-head stupid things I've ever heard.
That's probably because you don't understand the positive aspects. Shorting is absolutely critical to well functioning and efficient markets. It's not simply evil hedge funds betting against businesses or whatever trope you might have heard.
In fact, if housing was an easily shortable asset class, the above crisis you mention would have been far less severe (or possibly not happened at all) as short selling pressure would have kept prices at more reasonable levels.
What are your thoughts on insurance? Because shorting can be an insurance/hedge against price changes.
In the above, I’ve just realized a small profit by trading the underlying and a small bit of theta burn. As long as the former is greater than the latter (as long as realized vol > implied vol) I make money.
Rinse and repeat this process over and over again.