Cramer on shorting (credit, buy, sell, companies)

[Nepenthe]

Cramer put his hat in the ring for the position of SEC Chairman today. It's tongue-in-cheek, of course, though he did lay out some changes he would make. But anyway, one thing he is adamant about is that the shorts have been controlling the market (by the way, I'd like to debate the idea, not how raving bananas you think Cramer is). He points to the elimination of the Uptick Rule:

Uptick rule - Wikipedia, the free encyclopedia

He also says we need to abolish instruments such as leveraged and leveraged inverse ETFs (the 2X, -2X, 3X, and -3X ETFs).

These ETFs have been ON FIRE lately. The 3X and inverse 3X ETFs have taken off like rockets. Some speculate that 4X or 5X ETFs are on the way. I've made a nice bit of money day trading some of the 2X ETFs. I can use an inverse 3X ETF to essentially do short sales on margin in a cash account, even an IRA.

The 12:00 "flip" was a tactic of mine for a few days there -- buy a long 2X ETF at market open, sell it at noon and buy a short 2X ETF, hold that and sell at market close. This worked out nicely a few times. If the market starts out at one point, rises 200 points, and reverses course at noon to settle at about where it started, my equivalent gain looked like the market moving up by 800 points. Anyway...

I have no idea how right or wrong Cramer is on this. What do you think? Would bringing back the Uptick Rule reduce volatility? Would it cripple the inverse ETFs? Are inverse and leveraged ETFs unethical financial instruments? Do they circumvent margin and short sale rules to an extent that they should be wiped off the face of the earth?

What do you think?

Hey, why stop at the Uptick Rule and ETFs? Why not eliminate the CBOE options market? Buying puts on the market, how American is that? I find myself silently cheering big intraday downturns in the market that net me 200%, 300% on my puts while passers-by and co-workers stare in horror at another 9% intraday loss. Selling calls? What about bear market closed end funds and mutual funds? Get rid of hedge funds? Why not go back to basics? No more options, no more margin accounts... Why not eliminate the ability to sell short completely? Eliminate anything that is remotely bearish besides selling a long position to close (heck, we could add rules about that, like no selling before settlement date, no more day trading, how about that?).

[evilnewbie]

That would mean Big Business (who practically do the same thing) can't make loads of cash on some idiot who just buy/sell without any real idea of how the market works... These are the same idiots who lose their house, car, and life and then blame someone else for them being an idiot... then they will say, they "now" understand the game when they still haven't got a clue... Big Business loves using those options to garner more cash from other companies or from idiots... it creates a lot of wealth at the expense of greedy idiots... short answer, no short road to wealth but idiots don't know that, so the options are here to stay.. besides that Cramer is an idiot, he is doing stuff to help HIS positions... he isn't more knowlegable than other people, they give him way too much credit...

[Lulu101]

Someone explain why people still believe Cramer is relevant?

[Nepenthe]

Originally Posted by evilnewbie

That would mean Big Business (who practically do the same thing) can't make loads of cash on some idiot who just buy/sell without any real idea of how the market works... These are the same idiots who lose their house, car, and life and then blame someone else for them being an idiot... then they will say, they "now" understand the game when they still haven't got a clue... Big Business loves using those options to garner more cash from other companies or from idiots... it creates a lot of wealth at the expense of greedy idiots... short answer, no short road to wealth but idiots don't know that, so the options are here to stay..

I'm not even really sure what you are trying to say. Does the lack of Uptick Rule push the market down? Are leveraged and inverse ETFs evil?

Originally Posted by evilnewbie

besides that Cramer is an idiot, he is doing stuff to help HIS positions... he isn't more knowlegable than other people, they give him way too much credit...

He's somewhat knowledgeable and has an enviable resume. But can we debate the IDEAS, not the MAN?

[Nepenthe]

Originally Posted by Lulu101

Someone explain why people still believe Cramer is relevant?

I'm asking about his IDEAS about the Uptick Rule and leveraged/inverse ETFs, not whether you think he's relevant or not.

[Lulu101]

Ok. I'm "agnostic" on his ideas (don't you hate it when people use that stupid phrase) because I don't know anything about them, but I can't stand him. And with his track record I'm sure anything he recommends will prove disastrous.

Originally Posted by Nepenthe

I'm asking about his IDEAS about the Uptick Rule and leveraged/inverse ETFs, not whether you think he's relevant or not.

[Nepenthe]

Nobody has any opinions about leveraged and inverse mutual funds, leveraged and inverse ETFs, the Uptick Rule and short selling stocks, options trading, secret hedge funds, etc.? Some (including Cramer) are saying these instruments are responsible for a very large portion of the 2008 stock market crash as well as the unprecedented intraday volatility...

I work for a large brokerage firm. I'm not in finance anymore, but I still participated in a focus group today about what my firm can do to maintain and grow market share in these tumultuous times. One of my suggestions (I had several) was that we need to tap into the bear market mutual fund market with our own bear market funds. You could have heard a pin drop.

My contention was that instead of fleeing funds altogether (for some) or going to money markets or bond funds, people might have kept their money active in our funds or even put MORE money in had they had access to bear market funds in both their brokerage accounts and 401Ks. As of Monday evening, several funds were up over 100% for 2008.

My other idea was ETFs. And not just any ETFs, but ETFs based on my company's large portfolio of Select funds, with leveraged and inverse versions. These ideas did not go over well!

[goodbyehollywood]

That's exactly what I'm doing. I've decided why fight it? If the market wants to go down, let it... and I'll go along for the ride. So I'm dabbling in bear market funds and doing a little trading, with trailing stops. I'll probably venture back into options, but I'm keeping it simple right now. There's money to be made on all sides and making it any way you can is better than losing it, IMO.

Naked shorts are a different story, and I agree with Cramer there. Otherwise, I think most of his views are extreme. I would love for it to be a buy and hold market where the trend is up and volatility is low, but we're just not in that kind of cycle.

[Nepenthe]

Originally Posted by goodbyehollywood

That's exactly what I'm doing. I've decided why fight it? If the market wants to go down, let it... and I'll go along for the ride. So I'm dabbling in bear market funds and doing a little trading, with trailing stops. I'll probably venture back into options, but I'm keeping it simple right now. There's money to be made on all sides and making it any way you can is better than losing it, IMO.

Naked shorts are a different story, and I agree with Cramer there. Otherwise, I think most of his views are extreme. I would love for it to be a buy and hold market where the trend is up and volatility is low, but we're just not in that kind of cycle.

Thanks for posting!

I agree, the market is a whale shark and we're just little remoras attaching ourselves for a ride. Why not go WITH the flow a little? I don't think leveraged and inverse ETFs are necessarily bad or unethical, although 3X or the 4X/5X that might be on the way does seem excessive. Maybe they could look at a rule that says leveraged and inverse instruments can only be bought in margin accounts (although not necessarily ON margin). This would prevent their use in IRAs and other brokerage retirement account types.

I'm not knowledgeable enough to know whether reinstating the Uptick Rule would hobble the inverse ETFs or not. But I do think it should be seriously considered by Obama's SEC Chairman.

My director gets copies of all my trade confirms (required by law) and when he saw the ETFs I was buying he looked them up and took me aside for a meeting about them. We contacted the Ethics Office to make sure it was okay to buy these (but buying SPX puts is a famous move for people at my firm so I was pretty sure it was allowed). It's okay, but my director still thinks there's something just WRONG about profiting when the market is going down.

[brokerdave]

Originally Posted by Nepenthe

Thanks for posting!

I agree, the market is a whale shark and we're just little remoras attaching ourselves for a ride. Why not go WITH the flow a little? I don't think leveraged and inverse ETFs are necessarily bad or unethical, although 3X or the 4X/5X that might be on the way does seem excessive. Maybe they could look at a rule that says leveraged and inverse instruments can only be bought in margin accounts (although not necessarily ON margin). This would prevent their use in IRAs and other brokerage retirement account types.

I'm not knowledgeable enough to know whether reinstating the Uptick Rule would hobble the inverse ETFs or not. But I do think it should be seriously considered by Obama's SEC Chairman.

My director gets copies of all my trade confirms (required by law) and when he saw the ETFs I was buying he looked them up and took me aside for a meeting about them. We contacted the Ethics Office to make sure it was okay to buy these (but selling SPX puts is a famous move for people at my firm so I was pretty sure it was allowed). It's okay, but my director still thinks there's something just WRONG about profiting when the market is going down.

can you guys explain this process a little more to me? when cramer was talking about this the other day i was thinking, wtf is he talking about. i understand options/puts and his point on how it is not helping the situation, but the 2X, 3X i have no idea what it stands for or the ETF's. is this something i can do on scottrade?

if you can even just point me to a source that i can read up on. i would be interested to learn.

thanks for any help.

dave