What kinds of manipulation can take place on security options?
In options markets, manipulation would consist of first adopting a position in the options market, and then trying to manipulate the underlying so as to obtain a good payoff from the options position. This is akin to the increased activity that takes place to affect the 3:20pm Friday price in Calcutta in the context of their teji-mandi market. Another style of manipulation involves options which use physical delivery, and it is basically a variant of the short squeeze. The manipulator becomes long on call options to the tune of more shares than can be obtained for physical delivery. This would lead to a skyrocketing of the price of the underlying, and hence of the call option price. A useful policy for derivatives exchanges would be something like this: security options markets should only be launched for securities which meet a rule such as the security price should move by less than 0.5% upon purchases of Rs.0.5 crore”.( This is basically the levels of liquidity seen in Nifty). It sh
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