Was that a big cause of this? I didn’t hear much about it yesterday.
Sorry, cause of what?
Edit: if you’re talking about yesterday’s plunge, shorting was allowed yesterday. A ban would have slowed the fall if anything, no?
Edit 2: ohh you mean if the ban on shorts (starting today) was known about yesterday? Hm, i don’t think so, but I’ll ask
They probably have massive liabilities from the May contracts expiring today that more than wipes them out.
I believe all futures are run through a clearinghouse (a centralized counterparty) that bears credit risk. I don’t know if it’s adequately capitalized to bear a loss of this size though.
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Also I’m not sure if the ban on shorts ever applied to the May contract. I think the ban is a response to yesterday’s mayhem. I’ve asked some q’s and await some answers.
Allegedly part of yesterday’s nosedive was a result of people suddenly learning that the price could go negative, ie that their exposure was bigger than they would have signed up for, so then they bailed once they learned that. You know, efficient markets.
I was talking about yesterday’s plunge, I mean sure shorting has to play some role, but overall it was an issue of a lack of storage space and a lack of buyers for the expiring contracts leading to way too much supply, right? Nobody yesterday was saying the shorting was a major cause of it.
Morgan stanley still rating S and P 52 week average at 2650 (3% further down to go)
USO is a basket of futures with 80% (off the top of my head so may be slightly different but the majority at least) exposure to the nearest term contract.
In other words 80% of the etf was invested into futures that settled down -275%. It’s toast which is why it was halted multiple times.
My technical-analysis weirdo¹ says the announcement about shorts was made today, and he thinks it only applied to the June contract. So the ban on shorts played no role yesterday, to answer your question.
¹ To his credit, yesterday morning he went long natural gas and tankers based on fundamentals/intuition (rather than technicals) and is already up 7% or something.
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Supposedly USO cleared out all of their May contracts already - their procedure was to use a 4-day period to do it, and thus as of yesterday they were already mostly out of their May contracts.
They tweaked it to shift more to July and August, which is probably why June futures were down a lot today. About 80% of the ETF was invested in futures that settled down varying amounts, if it’s true that they were mostly out by yesterday they may still be okay.
It’s totally possible they’re ~insolvent and lying about it trying to figure out a way out, but it’s also possible they got out just in the nick of time through nothing more than luck.
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Yeah, what I meant wasn’t that the ban played a role yesterday it was that I don’t think shorts played a big role yesterday. But maybe I’m wrong about that.
Ultimately it seems absurd to me that we let people buy futures contracts who have no means of fulfilling them. If you want to buy oil futures, you better have some infrastructure in place if you get stuck with them at the end of the month. Creating this huge paper system of oil trading is nuts when you really think about it.
Anyone here have any advice for my brother?
He lives in Oregon. His wife is American. He transferred there in November to open a big new hotel. He is a senior executive. They moved to Oregon after 10 years of transferring around from hotel to hotel to advance his career. Oregon was chosen as the place they wanted to settle down for the long haul. Plan was to rent for 6 months, get a feel for the area, and then buy an acreage outside Portland.
So covid happened and his brand new hotel closed 3 months after opening. He is fine. He makes like $140,000 and is just on vacation days now.
He and his wife just found the perfect home. Of course they are a little worried buying in this climate. His job is pretty secure but there is a world where the hotel never opens again. I’d guess that is a 1: 1000 chance.
Normally he would buy the place with standard down payment and mortgage. They have good credit and lots of money.
But hewants an escape hatch if he was to lose his job and have to move back to Canada.
Would a rent to own be dumb? Have a one year rental clause and then option to buy? Are these contracts insanely more expensive? I know they are normally for people with no down payment or poor credit which isn’t the case here. He just sees it as allowing an escape hatch.
Dumb?
Thanks for any advice.
So he wants to rent it from the current owner and then buy it after 12 months if he feels like it? That sounds like a huge hassle for the current owner so yeah the only way I’d agree to it is if I’m able to gouge the renter good. If he wants to pay the rent the current owner would charge then sure go for it?
Any random hotel not opening again outside of going through bankruptcy is more like 1/10 not 1/1000 if I had to guess.
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Agreed with this.
It’s not a random hotel. It’s a brand new flagship hotel from a major international chain. It would take a lot for them to scrap it and not reopen.
It’s a pretty common type of contract. Called rent to own or lease to own.
Ok 1/100.
Who knows. Possible. Which is why he wants an escape hatch.
Like I said it’s a huge hassle for the seller. You get put in the position of possibly having to still sell your house a year down the line. That whole year you’re worried about the renter changing his mind. The last thing most sellers would want is to own two houses a year on after they had “sold” the house.