By Chris | September 19, 2008
The SEC bans the short-selling of financial stocks. This is a sad day. Fear and politics triumph over individual freedom and sound policy.
Arnold Kling offers a primer on short-selling and why stock prices can fall even if no one is “shorting.”
Tyler Cowen notes that investors are still able to short the exchange traded fund XLF. In other words, traders can a short basket of financial companies, they just can’t short any individual companies.
The options markets for these stocks are still operating. It occurred to me that you could still short stocks synthetically by purchasing a put and selling a call. However, if the call is exercised, you would become short the stock…which is illegal. Does anyone know how the options market functions under these conditions?