synthetics creates stock for short sellers, page-2

Thanks Godit

I had always wondered what the downside to these options were, and also why anyone would write them for a company such as Buru where you could be severely burnt at the turn of a drill.

So, in other words, when an entity such as Macquarie sells such an option, they will also go to the market and buy some shares to hedged the option. Now Macquarie, being more financial wizards than fundamental investors, don't want to actually own these shares, so they lend them to the nearest shorter and collect a lease fee.

So basically, they end up earning say 5% pa at no risk to themselves. And at the end of the day, they don't care if the price goes up or down. Of course it's a different story for the option holder and the shorter-they care a lot.

Well, I'm hoping the dynamic is about to change, and the shorters are about to return their borrowed shares, preferably starting tomorrow :)