Using Options To Manipulate The Underlying Equity.

Good morning fellow traders and investors.


Today I'm going to briefly discuss something that I wish I could use in my everyday trading to manipulate equity prices, but sadly I can't, because my account simply isn't large enough.


Most of you will know that options are derivative contracts that allow you to buy (call - you're calling the asset towards you) or sell (put - you're putting the asset away) something at a pre-agreed price.


Now, to quickly make it clear how people practically use these, you can hedge with them or speculate with them. That's pretty much it, although you can use them to assist takeovers, etc.


If I was a hedge fund that wanted an asset to move up in value I would want to create a picture in the derivatives market that looks nice and rosy in order to encourage the buying of that equity. In this instance I would be aggressively buy call options, which would give the impression to the market that the asset was going to rise in value on that day.


This may not sound too fantastic at the moment, but the beauty of options is that you can create an excellent picture for large equities in the derivatives market without spending very large amounts of money: $10,000,000 in on the US equities market is enough. This means that you can (if the market goes with your options play) take profits not only from your proportionately larger position in the underlying equity, but also on the options you purchased as well.


To summarise, the ratio of money to percentage gain you need to move an equity by using derivatives is much better than the ratio you get from just buying the equity at the present market value.


Trade well,

The Masked AIM Trader