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Path: utzoo!linus!philabs!seismo!rlgvax!cvl!umcp-cs!israel
From: israel@umcp-cs.UUCP
Newsgroups: net.movies
Subject: Re: Trading Places
Message-ID: <419@umcp-cs.UUCP>
Date: Sat, 2-Jul-83 19:13:36 EDT
Article-I.D.: umcp-cs.419
Posted: Sat Jul  2 19:13:36 1983
Date-Received: Sun, 3-Jul-83 16:47:02 EDT
References: <114@cbscc.UUCP>
Organization: Univ. of Maryland, Computer Science Dept.
Lines: 31

What I believe happened (and I'm not an expert on the commodities market
either) is that:

First, Louis and Billy Ray waited for the price of frozen OJ stock to get up
to $1.40 and then they sold.  This is called selling short, which
means that they were selling options that they didn't have yet.  This
is a binding transaction on them, which means that they have until the
transaction is completed to actually acquire ownership of the necessary
papers.

Second, the announcement that the orange crop was going to be a full
crop was released.  This immediately lowers the worth of the frozen
orange juice stock, which starts to plummet.  When it got down to
twenty-nine cents they bought up the necessary paper to cover their
first transaction (which was what they had sold earlier in the first
place).

So what they effectively did was to buy thousands of shares at twenty
nine cents apiece and sell those shares at one dollar and forty cents
each.  The order of the buying and selling doesn't matter.  If the
price had gone up, then they would have had to buy options at a higher
price to cover what they had sold at a lower price, so they would have
lost money.

Are there any commodities experts out there who can confirm or deny
this?
-- 

~~~ Bruce
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