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[ga] Re: WLS and bares


In a message dated 1/11/2002 10:31:05 AM Central Standard Time, patrick@quad.net.au writes:


Bear Trading.  Normally people think in terms of buying stocks (aka shares) on
the stock exchange.  The person who is selling is expected to have them to
sell.  However, it is perfectly possible for a person to sell shares that they
do not own.  Of course, they must deliver shares on the due date (often a few
days into the future) and they will have to buy them in the market on or
before the delivery date.  Naturally the seller hopes the price will go DOWN
before they are required to buy them.   That's sometimes known as "going
bear".

Not exactly true Patrick, but close.  In order for a person to sell shares they do not own, they must borrow  stock from someone or the brokerage firm ... which is a "short sale".   If they own the stock, then they can "sell against the box".  

In the options markets you can either buy or sell a put or buy or  sell a call (or spreads and straddles).  If you sell a put,   it is called a "naked" and can be quite dangerous and most firms will require the full cash price of the stock to be in your account.  The  person selling is referred to as a "bear", but the actual term is "trading bare"., ie bare of stocks or naked.  

If you sell a call and you own the underlying stock, then it is called "writing".  Any option can be exercised at the holder's discretion.

jess


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