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Ostepop
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Joined: February 6th, 2009, 1:50 pm

What happends if a company would short themselves?

February 1st, 2010, 11:26 pm

Im curious as to what would happend if a company would short sell its own shares in anticipation of economic downfall (or say, buy lots of puts). Can a company buy puts on themselves? (I reckon they cannot short). If they can, what would happend if the company was supposed to go bankrupt?
 
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giordanobruno
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Joined: January 25th, 2010, 8:54 pm

What happends if a company would short themselves?

February 1st, 2010, 11:50 pm

Depending on your country or jurisdiction your government can forbid such activity. As to what happens...you can either win or lose in the deal.
 
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Alkmene
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Joined: January 18th, 2007, 10:19 pm

What happends if a company would short themselves?

February 2nd, 2010, 12:21 am

QuoteOriginally posted by: OstepopIm curious as to what would happend if a company would short sell its own shares in anticipation of economic downfall (or say, buy lots of puts). Can a company buy puts on themselves? (I reckon they cannot short). If they can, what would happend if the company was supposed to go bankrupt?Apart from legal implications, yes they can.In fact, since a company is owned by the shareholders, a share buy back is nothing but selling of shares by the owners to the company; probably not shorting but it is taking equity out of the company because the ROE is assumed to be less than outside the company.But mostly a larger deal would be considered insider trading ...Alk
 
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KackToodles
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What happends if a company would short themselves?

February 2nd, 2010, 8:04 am

comapnies short themselves every day. they short themselves whenever they (1) sell more shares of their own stocks; and (2) when they give out stock options to employees or business partners. Shorting is just another name for selling your own shares. what's the big deal? duh.
 
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CrashedMint
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Joined: January 25th, 2008, 9:12 pm

What happends if a company would short themselves?

February 2nd, 2010, 8:04 am

Last edited by CrashedMint on February 2nd, 2010, 11:00 pm, edited 1 time in total.
 
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ppauper
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What happends if a company would short themselves?

February 2nd, 2010, 9:49 am

QuoteOriginally posted by: OstepopIf they can, what would happend if the company was supposed to go bankrupt?as stated by KT, a company can issue more stock.If it did this via a prospectus (eg a rights issue or a private placement or an additional public offering), knowing that it was likely to go bankrupt and failing to disclose this, in many jurisdictions this would be considered fraud, and the directors would be looking at civil action and/or jail time
 
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LTrain
Posts: 1077
Joined: June 23rd, 2004, 6:42 pm

What happends if a company would short themselves?

February 3rd, 2010, 3:41 am

Until recently this was a great hedge fund strategy. Short enough shares of a stock that you get voting rights on the underlying company. Then force the company into reorg or bankrupcty or {whatever} and cash-in. The risk is a big ol' short squeeze though.
 
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willsmith
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Joined: January 14th, 2008, 11:59 pm

What happends if a company would short themselves?

February 4th, 2010, 11:13 pm

Being a rational economic 'agent' like we all are ....If you are an employee of a company, especially if some of your pay comes from bonuses, it makes sense to short your own employer, to hedge the significant embedded risk you have in your job and its derived income stream.And you should definitely turn down share options, that ramps your risk up greatly.But it's not something you should discuss in detail with your colleagues or boss!!! Not sure what compliance says either. If you only shorted slightly, you could argue it. But clearly you wouldn't want to take the hedge further than parity, or they can rightly claim you have a net gain from the company's loss.Just being rational...
 
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rmax
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What happends if a company would short themselves?

February 5th, 2010, 8:10 am

QuoteOriginally posted by: willsmithBeing a rational economic 'agent' like we all are ....If you are an employee of a company, especially if some of your pay comes from bonuses, it makes sense to short your own employer, to hedge the significant embedded risk you have in your job and its derived income stream.And you should definitely turn down share options, that ramps your risk up greatly.But it's not something you should discuss in detail with your colleagues or boss!!! Not sure what compliance says either. If you only shorted slightly, you could argue it. But clearly you wouldn't want to take the hedge further than parity, or they can rightly claim you have a net gain from the company's loss.Just being rational...Dubious strategy after the UBS SysAdmin did exactly that, and then brought down one of their trading systems (Kondor??). He was found out and prosecuted. However would be willing to bet he was stupid enough to brag about what he had done...
 
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hamster
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Joined: October 12th, 2008, 3:51 pm

What happends if a company would short themselves?

February 5th, 2010, 6:42 pm

a firm sell parts of its business/assets to a third party, and both agree to repurchase in one or two years for the fair value what is determined by a fourth party (sales repurchase -> short sale). if the third party outsourcing provider enhance the business unit, the firm have to pay for it lateron. if the third party fails, the firm get its business unit back for a low price.
 
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farmer
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What happends if a company would short themselves?

February 5th, 2010, 7:49 pm

Any big bank that takes a short position in S&P 500 futures or ETF's is shorting itself. I am sure Goldman Sachs must have made a market in GS at some point. That is probably why the large hadron collider doesn't work. There is missing entropy creating an entropy vacuum as a consequence of Goldman shorting her own stock.
 
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KackToodles
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Joined: August 28th, 2005, 10:46 pm

What happends if a company would short themselves?

February 6th, 2010, 6:10 am

QuoteOriginally posted by: ppauperas stated by KT, a company can issue more stock.If it did this via a prospectus (eg a rights issue or a private placement or an additional public offering), knowing that it was likely to go bankrupt and failing to disclose this, in many jurisdictions this would be considered fraud, and the directors would be looking at civil action and/or jail time first, MANY large companies sell shares constantly in the market. They do this by getting authorized to sell a ton of shares. But they don't sell them in one shot. Instead, they slowly dribble out the shares over a period of years. Second, when a company gives employees shares of stock (or stock options), it is effective selling the shares to the employee in exchange for labor. So any company who gives stock compensation is effectively "shorting" itself. Third, companies sell (or short) their stock, not because they believe it is going down in value; they sell because they need to raise capital to AVOID going bankrupt. If it is illegal for a company to go bankrupt shortly after selling stock, about thousands of internet start-up executives would be in jail right now, because many internet start-ups in 1999-2000 went bankrupt in 2001.
Last edited by KackToodles on February 5th, 2010, 11:00 pm, edited 1 time in total.
 
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Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

What happends if a company would short themselves?

February 6th, 2010, 3:24 pm

QuoteOriginally posted by: KackToodlesIf it is illegal for a company to go bankrupt shortly after selling stock, about thousands of internet start-up executives would be in jail right now, because many internet start-ups in 1999-2000 went bankrupt in 2001. Indeed! And what is an IPO but the biggest self-short of all. That's Warren Buffett avoids IPOs.QuoteOriginally fromWarren Buffett"It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors)."
 
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ppauper
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Joined: November 15th, 2001, 1:29 pm

What happends if a company would short themselves?

February 7th, 2010, 11:36 am

QuoteOriginally posted by: KackToodlesQuoteOriginally posted by: ppauperas stated by KT, a company can issue more stock.If it did this via a prospectus (eg a rights issue or a private placement or an additional public offering), knowing that it was likely to go bankrupt and failing to disclose this, in many jurisdictions this would be considered fraud, and the directors would be looking at civil action and/or jail time (snip)If it is illegal for a company to go bankrupt shortly after selling stock, about thousands of internet start-up executives would be in jail right now, because many internet start-ups in 1999-2000 went bankrupt in 2001. indeed, but notice what I said about `` knowing that it was likely to go bankrupt and failing to disclose this''
Last edited by ppauper on February 6th, 2010, 11:00 pm, edited 1 time in total.
 
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deepvalue
Posts: 918
Joined: April 25th, 2007, 6:08 am

What happends if a company would short themselves?

February 7th, 2010, 3:34 pm

QuoteOriginally posted by: ppauperindeed, but notice what I said about `` knowing that it was likely to go bankrupt and failing to disclose this'' nobody "knows" about the future, not even insiders. if the insiders "know" company will go bankrupt, why would they waste their time still working there in the first place? The insiders never "know"; they are true believers in success, optimists.
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