I understand your surprise here, but just to note: lay people intuitively think that "stock manipulation" is a crime. This is because their retirement savings relies on stock prices being fairly stable due to attachment to actual business value. Intuitively, people that put that system at risk are doing something wrong, and things that are wrong should potentially be illegal.
Essentially: most people intuitively think the stock market should be more heavily regulated than it actually is.
This is why I wish I had a pension instead of a 401k. Too bad that the people who still offer pensions are also paying a lot less on average (usually due to being government related) than companies offering 401ks do.
The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security".
Buying and holding call options is not market manipulation, full stop. Please provide an example of someone being penalized by the SEC for buying and holding call options without using insider information. You won’t, because buying call options is not market manipulation.
Is it market manipulation when Buffett announces BH bought shares of a company and then the shares skyrocket?
Legally it depends on intent, which would be very hard to prove. Unless senior execs wrote emails saying “let’s buy option to manipulate the market” or colluded with other market participants, it is safe. However, it is not “always” safe.
I never claimed someone was ever penalized by the SEC for buying and holding call options, just that buying derivatives can be a crime if it's done for the purpose of market manipulation.
Part of the difference here is that BH is legally obligated to disclose when they buy shares of companies. At least, they are under certain circumstances, which I can’t remember off the top of my head. You can’t punish someone for something they’re legally obligated to do, because one can’t be legally obligated to commit a crime.
Lots of things where once legal, which the majority of society came to deem as bad (slavery, child labor) - which we then came to make illegal.
But the problem here isn't just simply buying stocks, or holding options. It's the repeated process of buying both a stock and its options at the same time by a whale - and it seemingly does allow for manipulation of stock price. As so, why shouldn't such a pattern of activity be made illegal?
Eventually the “manipulation” will push the price to a point where other actors sell, and then more people sell and the price corrects (see yesterday and today’s charts). Buying equities and options in large amounts is not market manipulation. There are lots of institutional actors placing large orders all the time.
>Eventually the “manipulation” will push the price to a point where other actors sell, and then more people sell and the price corrects (see yesterday and today’s charts).
Not sure how this statement helps your argument. The same happens in pump and dumps. The people who artificially manipulated the price up in the first place sell in large, duping the latecomers out of their money, and the price corrects.
>Buying equities and options in large amounts is not market manipulation.
No it is not, but this isn't a simple matter of buying of equities and options. It's a pattern of repeatedly buying equities and options by one large party in a way which allows for potential manipulation. As so, even if such a pattern isn't illegal now, why shouldn't such a pattern be made illegal? Wash trades used to be legal before 1936, but we made them illegal for similar reasons...
Now please explain why this activity shouldn't be made illegal, when wash trading is deemed illegal. Wash trading after all, involves buying stocks... yet it's illegal.
Wash trading is buying and selling to yourself to create the illusion of volume, which is fraudulent. Buying OTM call options on an exchange does nothing to distort volume or manipulate price, it’s simply part of price discovery, just like buying or selling shares.
This scenario is not just "buying OTM call options", just like wash trading is not just "buying stock". This is the problem with your argument. You oversimplify the issue.
Wash trading is a way of buying/selling stock, (namely by one party at the same time), which can be abused to manipulate prices. Just like what is happening here is a way of buying stock and its options (namely by one party at the same time, repeatedly), which can be abused to manipulate prices.
Ought vs Is, my friend. You are making a moral/ethical claim about how the world OUGHT be while he is making the distinction about how the world IS today.
Some patterns are illegal by the way. However proof is still quite difficult to come by.
For instance, it's market manipulation to place large orders continuously and then cancel those orders continuously.
It's also market manipulation to place both LARGE buy and SELL orders at the same time in order to fake volume for a particular stock.
However me as an individual or private entity can at any time go place an a LARGE as fuck order for what ever I want.
In fact if you look back and study old stock floors ect. traders started to learn what the people at the large banks/intuitions looked like. When they saw them walk up with their stack of PHYSICAL orders, they'd try and step in front of them because they knew the market was about to move as a large order was about to be placed.
Shares prices are falling today. People are selling. That means people are also buying. Every transaction has a buyer and a seller. Yet prices still fall.
Let me rephrase: Buying a huge volume of shares equivalent to SoftBanks option delta exposure would raise the share price of whatever underlying the options were for.
If I buy 10 calls, the MM has to hedge. If SoftBank buys 100,000 calls, they just hedge more. How do you figure this is in any way remotely illegal?
Buying shares also raises the price of shares, should that be illegal too?