Beau (or anyone for that matter) can you give me a basic explanation of how/why JP always does this on option's expiration day? I do not really understand the how/why and am interested in knowing.
"Three things cannot be long hidden: the sun, the moon and the truth"
JPMorgan sells thousands of contracts naked short (meaning they probably don't have the metal representative of what they are selling)just before option's expiration day. That means if someone had purchased an option for July with a strike price of $1200 it will expire worthless for the buyer. Once they drive the prices down (both silver and gold) as far as they can, they "cover their shorts" (meaning they buy back the contracts at a much cheaper price). They make money when they replace what they sold at a cheaper price, the difference is their profit. Which means you can expect the markets to rebound early next week... but it's still ugly on days like today. If only you could predict with absolute certainty that they would drop bombs you could take cover... sell before and buy back like they do.
So the answer to the original question can be divined in the future by looking at the open interest numbers prior to options expiration day. It will go low enough for them to cover the great majority of the shorts at a profit.
How low will JPMorgan drive gold today?
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Posted - 07/16/2010 : 08:00:33
