These big positions take time to put in place and they take time

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Re: Option MM exception....


Janet,

The fact is that I'm trying to understand what is REALLY happening behind the curtain (wizards are a lot less scary when brought into the daylight).....Obviously there are FTDs (failure to deliver) these are naked shorts. Now, who is doing it? A hedge fund can't naked short...the trading broker would have to do that. The hedgie can enter orders to sell and sell short...it is the broker who has to arrange the borrow for the short sales. So the hedgies are doing what hedgies do (kinda like snakes, they bite for a living). Major brokers can get really wrapped around the axle with excessive naked shorting. So, who can naked short with impunity? The answer is, market makers!

Now, would a stock market maker naked short for a customer? Probably only for a short time while shares are located. That leaves the Option Market Makers to naked short for extended periods. Why would they do that? After all a short, naked or otherwise, is an exposed position and market makers are all about NO RISK. If an option market maker shorts a stock it is a hedge against a long put position that the OMM has been required to take.

The OMM would rather do a straight borrow and short, but if the position is large and there are no shares to borrow, he has to naked short because he is OBLIGATED to do the put transaction. For a good chunk of 2007 Omnivision was so heavily shorted that there were no shortable shares available (we know that some shareholders were getting letters form brokerages willing to pay for borrowed shares)

Omnivision winds up on the RegSho list as a result of OMM naked shorting which is related to large put WRITING.

Ya know, you can't deny the CONVICTION of the big shorts....they shorted 40% of the shares...they shorted all they could and when they couldn't short any more they bought puts, which made the OMM naked short even more!!! That's some large brass 'nads!

These big positions take time to put in place and they take time to unwind. We saw 7 mil shares covered between Aug and Sep. Obviously the big short money is covering. They probably started that back in Mar when it became obvious that Omnivision was not going to tip over. Now, how did they do the covering? If they were smart, they would share the loot (paper short gain) with a MM in order to quietly accumulate shares to cover the shorts.

Is there manipulation? Hell yes! There is large scale strategic manipulation as we see with the Rocker types and there is small scale manipulation day to day by the trader types. This kind of manipulation cannot be successful with a $100bil market cap company like microsoft, but with $100 mil capital, you can jerk Omnivision all over the place.

What is going on Now?
We came off the Reg Sho list, so we can surmise that the puts behind the naked shorts have been extinguished. the short open interest decreased abruptly in Aug-Sep. There have been a highly unusual number of puts open for Dec. That there was no attempt to run the stock price up toward max pain, the OMM must have been long the puts. therefore the OMM must deliver the shares to the writer on or before expiration (last Friday).

If this whole puzzle fits together, the shorts have or are in the last stages of final covering. They are doing this because MANAGEMENT HAS EXECUTED A SUCCESFUL, YEAR LONG REBUILDING PLAN AND THERE IS NO MONEY TO BE MADE BEING SHORT ANY LONGER. So, that is what management has done....and when they flip over those hole cards you want to be "all in" with them. Some on this board are going to be embarrassed by their "back seat driving" comments when the last chapter is written on Omnivison.

So, Janet I am not content with ghosts and boogie men.....I want to understand how the machine works so that I can predict what the machine is likely to do next. I 'spect, as an engineer, you might understand this.

Are there naked shorts? Sure, but it is done by MMs, not the evil hedge funds.
Is there manipulation? Sure, and it is more effective short term than long term. It's legal, it makes money for the "house", we would all do it if we knew how and had the capital. Wall Street manipulates and snakes bite....what's the big secret?