| Ok, that is helpful. I'm still a bit confused though. (where's collida when you need him?) So I get the point where the scammer is selling options amongst themselves to get the stock price to rise. I put out an "ask" and then later come back with another shell company/identity and buy that stock with my "bid". Brokers are handling these transactions by connecting the buyers to the sellers (which happen to be the same people so they can buy an sell at an arbitrary price and only the brokers are making any money on the transaction fees.) Now you stipulate this causes the stock to show up as "over valued" based on pretty standard technical analysis. Sort of "look no revenue but people are buying this stock for $2? WTF?" So our short seller (who isn't a scammer right? they are being scammed?) goes to their broker and says we think this price is too high and its going down, so we want to sell a put option (that is the promise of a sale) of these shares at $2 a share, 6 months from now. Since they are an options trader and they know how these things go, they also buy a call option, to buy shares at $2.25 6 months from now. This is known as a "butterfly" if the shares go up you will be able to cover your put options with shares from the call option and "lose" only 25 cents per share, if the shares go down, the person on the other side of your put buys your shares for $2 and you sell them for less than $2 and pocket the difference. What I don't understand is what broker is going to play the other side of the short seller's order book? If our scammers agree to sell a call option at $2 to counter balance the short seller's put option, they are forced to sell at $2, they can't decide to sell at $20. How does the scammer get the short seller's broker to take a bath here? They aren't some dupe in an investment club who things "its going to the moon!" and so buying what ever comes out, they are trading options on high risk securities over the counter (in many ways the highest risk securities). So the only way I see this working is if the broker in this melodrama is corrupt and telling someone to short a stock which the broker does not ever get control over (essentially con them into a naked short). |
Your point still stands and in respect to broker(s), I wonder if they:
* knew, but could ignore it, because it is legal and they wanted to collect the fees
* didn't know
* knew, and should have done something, but didn't, and thus broke some law.