Forum Archive Index - July 2002

["Charlie" <cma36@it.canterbury.ac.nz>]

Hi,
thanks to all who wrote about the Options question.
Actually I was surprised to find out that New Zealand basically has no
"exchange traded options" (i.e. options that are issued by shareholders).
New Zealand only really has "company options", and only a miniscule handful
of those to boot.
The US markets, on the other hand, have many available stock that have
options, along with the ability to sell short. I can't understand how people
in NZ are supposed to make money out of a falling share price. For example,
if you *know* that the price of a share is going to fall dramatically in the
US (perhaps due to some bad publicity), then you either go and buy a ton of
"put options", giving you the ability to sell the share at a certain price
on or before a certain date, or you go and "sell short" the share, meaning
that you sell the share before you actually buy it (you are committed to
buying it later on).
Using the "put option" option :) is the better choice if you are certain
that the price will drop as you are leveraging your money in a big, big way.

Of course, on the flip side, I can't see how people are supposed to make a
killing on the NZSE if you are certain that the share price is going to
*rise*. In US markets you would simply go and buy a ton of "call options".
In NZ all you can do is simply buy the shares (possibly with the help of a
margin account).

How am I supposed to *know* whether the price is going to rise or fall, you
ask? Well, no-one can say with 100% certainty what is going to happen the
next day - I mean look at September 11. But there are certain people in NZ
society who either know the right people or have worked out systems that are
reasonably reliable. Certain people have the means to manipulate shares
prices, whether we like it or not. I mean, you can probably tell in advance
which way a share price is going to go after the release of either a very
good, or very bad, press release. So, what about the people who know about
this press release before it is brought to the attention of the general
public?

I seem to remember some famous economists proving that the best (perhaps
only) way to make money on the sharemarket is by obtaining information that
other people do not have; through assymetric information. They won the 2001
Nobel Prize for this:
http://economics.about.com/library/weekly/aa102301.htm

I'll cease my ramblings now :)


----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/