Question about short selling

Could you achieve the same position as shorting a stock if you shorted the future? If so what are the key difference and why don’t the people do that? I know about options and how you could achieve the short position by buying puts but what about shoring futures??? I don’t have much knowledge about the futures Market. Anyone with knowledge about the markets, I would appreciate you comments!

Only 799 stocks are banned from shorting, not futures, etc. Unfortunately, there is no futures market for GS or JPM, etc, so you can’t short that way.

Sure there is, I just don’t think anyone uses it. Google single stock futures.

Joey, why would no one use it if it gives you more leverage? Can you elaborate.

On another board, there was a similar argument about using variance swaps to replicate banned option positions, etc, and I think that discussion parallels this one. This doesn’t really work because to structure the product you’re trying to trade (be it a single stock future, variance swap, plain vanilla call or put option), the Bank/Broker-Dealer needs to recreate (or attempt to recreate) the product using short stock, plain vanilla options, etc. Since they can’t really short stock in that capacity, the difficulty will be reflected in pricing and that will, most likely, be reflected in pricing, so while it works from a risk management perspective, it may completely kill your P&L. I don’t know how option/volatility desks will operate over this period. I’ve emailed some friends on the vol side to see how they’re holding up, but shockingly, telling their friend in distressed debt how difficult their business is right now isn’t their top priority.

Except that’s not really how futures markets work. In the futures markets there are just as many longs as shorts so it’s essentially a matched book trade. All I need to go short a futures contract is somebody else who wants to be long. I think the problem is that there just aren’t many reasons you would want to be long a futures contract on a single stock instead of just long the stock except for trading considerations. If the market isn’t liquid, those trading considerations go all to heck. I’m not party to that other discussion but is the idea that you can nearly recreate an option by using a spread of variance swaps? If you can’t hedge it and you’re looking for a matched book trade on a spread of variance swaps, I think you are SOL most of the time.

JoeyDVivre Wrote: ------------------------------------------------------- > Except that’s not really how futures markets work. > In the futures markets there are just as many > longs as shorts so it’s essentially a matched book > trade. All I need to go short a futures contract > is somebody else who wants to be long. That’s probably how large, exchange based futures markets work, but is that necessarily how OTC futures markets work? Especially in single stocks? > I’m not party to that other discussion but is the > idea that you can nearly recreate an option by > using a spread of variance swaps? If you can’t > hedge it and you’re looking for a matched book > trade on a spread of variance swaps, I think you > are SOL most of the time. Yes, the reasoning was that people shouldn’t be as worried about not being able to put on certain option positions because you could replicate the desired positions, and effectively be short stock with variance. It’s a very interesting argument but practically off on many levels–the main one being “Sweet, but clearing won’t let me trade variance and my risk management software just looks at me funny when I ask about it…” It was actually a conversation on dealbreaker oddly enough…

ahahah Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > Except that’s not really how futures markets > work. > > In the futures markets there are just as many > > longs as shorts so it’s essentially a matched > book > > trade. All I need to go short a futures > contract > > is somebody else who wants to be long. > > That’s probably how large, exchange based futures > markets work, but is that necessarily how OTC > futures markets work? Especially in single > stocks? An OTC futures contract would be a forward contract. Almost by definition a futures trades on an exchange with a third party providing credit guarantees. > > > I’m not party to that other discussion but is > the > > idea that you can nearly recreate an option by > > using a spread of variance swaps? If you can’t > > hedge it and you’re looking for a matched book > > trade on a spread of variance swaps, I think > you > > are SOL most of the time. > > Yes, the reasoning was that people shouldn’t be as > worried about not being able to put on certain > option positions because you could replicate the > desired positions, and effectively be short stock > with variance. It’s a very interesting argument > but practically off on many levels–the main one > being “Sweet, but clearing won’t let me trade > variance and my risk management software just > looks at me funny when I ask about it…” It was > actually a conversation on dealbreaker oddly > enough… There’s a good paper online somewhere that Emmanuel Derman wrote about variance swaps showing that they are packages of options. You might want to check that out if you think that’s cool. I wouldn’t let people replicate options with variance swaps either but what kind-of crappy risk management software do they have?

Probably Microhedge