Paulson Puts – A New class of non-exercisable, untradable options priced at a premium? 
Shorts Up in Smoke Worldwide
By Adam Warner, Daily Options Report.
Things that are legal in the Netherlands? Prostitution. Buying pot at a coffee house.
Things are not legal in the Netherlands? "naked" Short Selling.
The Dutch Finance Minister is banning "naked" short selling of financial stocks for the next three months to increase the stability of financial markets.
The ban will go into effect Monday, Finance Minister Wouter Bos told national broadcaster NOS.
As a followup, it appears SKF has "resolved". At least the price action suggests that, so apparently somewhere in that SEC Five Year Plan that we linked to earlier, there was a provision for an unknown off-floor entity to short stock so as to allow Pro-Shares to keep this product afloat.
And it turns out the Federales are one step ahead of me and my primer on Bearish Bets in a World Without Stock Shorting. This from Barrons.
The new ban also would affect the basic trading strategies that many investors use to reduce the risk of owning financial stocks. Assuming the ban stays in effect, "we will not allow customers to exercise puts if they do not have the long stock in their account to deliver against the exercise," says Thomas Peterffy, chairman of Interactive Brokers (ticker: IBKR), a top online discount-brokerage firm widely used by investors who trade options. "Similarly, we will not allow customers to sell calls unless they are selling against long stock, and will not allow selling long stocks when there is a short call position in the account against the stock."
In other words, here’s an interaction I expect to play out on Exchanges across America.
Broker: I need a 100 up market in the XYZ Financial Corp. ATM Oct. puts.
Trading Crowd: (sound of crickets chirping).
Now in all fairness, the Specialist and MM’s have the exemption to short stock. But that exemption may have little value if Interactive is correct And I believe they are as from what I understand Schwab has a similar policy. Who can trade options opening in a financial now?
If you have a pre-existing position, you can apparently behave as normal. But from now until The New Order expires, puts are effectively European Style. Meaning you can’t exercise them. But they’re not really European exercise since you can NEVER exercise them unless you own stock. Actually European style Deep ITM puts would trade under intrinsic value (because of the cost of carry) but these new ones will trade at a premium because …..well it’s one of the few remaining ways to make a bearish bet.
So let’s add a new class of option. Our normal ones are called American, our non-exercisable ones are called European, so how about we call our untradable one’s "Paulson Style".
