DJIA up 800 days in 2 days - The Death of Short Sellers

Posted by Kris | Friday, September 19, 2008 | , | 0 comments »

DJIA turned around dramatically last night from negative area to positive ~400 points as news of US government plan to bail the financial systems. Tonight, the FEDs announced that around ~799 financial stocks will be banned from short selling activities until 2nd OCT. Ultrashort ETF on financials are also suspended from trading. Really pity them as they got burned real bad. To top it out, this Friday is expiration day...thus the double wammy happened earlier than i expected.

With the huge gain, the violatility got wiped out and put options lose alot of their premium even if it is a forward contract. (contracts expiring on the month after the current expiration month)

Thus, my initial gut feeling was correct but i was not able to capitalize on it. The Feds cannot just kept on injecting capital anymore. More tough laws must be implemented.

Nevertheless, after the euphoria is fading away, short sellers might turn to other vulnerable sectors like tech, consumer, etc.

Throwing short selling away though will possibly make the financial sector susceptible to  huge syndicate/operator cornering the stock prices thus hurting the small retailers like us. This is similar to big fish eat small fish scenario aka something like the KLCI.

I guess a lot of stock owners of failed banks like Fannie, Freddie ,Lehman , Bear Stern , AIG are screaming murder on why the FEDs did not take this route earlier!!