Make it possible for stock prices to go negative
Posted by Laserlight_jazz@reddit | CrazyIdeas | View on Reddit | 33 comments
Imagine buying a share of a company, and it going so negative that you're in debt
BanAccount8@reddit
If I buy negative stock and company goes out of business I would gain money
MaTr82@reddit
Would they need to give me money to take their negative stock?
EVOSexyBeast@reddit
Yeah, the idea works, it’s just like when you sell a put option.
You get paid upfront, that’s the premium, but in return, you’re taking on the risk that the stock might fall. If it does, you’re obligated to buy the stock at the strike price, even if it’s dropped far below that. So while you collected money in the beginning, you could end up taking a big loss if the stock tanks.
It’s almost like the stock becomes a liability rather than an asset and you’re being paid to take it off someone’s hands. Just like how, in theory, a company might pay you to take its worthless or toxic shares, selling a put can land you in a spot where you’re paid upfront, but then forced to absorb the downside, as if the shares have negative value.
mfigroid@reddit
That's short selling.
EVOSexyBeast@reddit
No it’s not
dirtmother@reddit
So negative gambling? Why have I never heard of this before?
Take my money!
EVOSexyBeast@reddit
Yep, but if you want to gamble even more you can sell naked calls.
Same deal where you get paid upfront, but this time you’re betting the stock won’t go up. If it stays below the strike price, you keep the premium and walk away. But if it rips higher, you’re on the hook to sell it at the strike price, no matter how high it goes, and since you don’t actually own the shares, you’ll have to buy them at market price, which could be way more. And stocks can go up theoretically infinitely, so you can theoretically owe infinite money.
You can sell a call for $80 and if it goes up a ton you could owe millions of dollars.
dirtmother@reddit
Any chance you can just do this and then declare bankruptcy?
Seems like that would be illegal, but I'm starting to wonder if maybe some addicts are missing out on a solid bender pay-day if not.
Maybe that's why they don't want people to know about this.
EVOSexyBeast@reddit
If you do it with the intent to defraud your broker that’s a crime.
But yeah many people do it as a gambling addiction or just without understanding what it was they were doing and declare bankruptcy and also are banned from ever trading options by every broker there is. Brokers also have controls that keep you from doing things that are too crazy.
It’s not a get rich quick scheme because it’s not like you get to keep your premium after the bankruptcy.
mfigroid@reddit
They do it with bonds.
SpaceCancer0@reddit
Shut up and give me money!
cogra23@reddit
Have an annual fee (tax) on every stock. Make it cost money to hold.
HorsedickGoldstein@reddit
It will never happen. It will just be worth $0 if the company is bankrupt. You’ll never be in debt from owning a stock
Turbulent-Name-8349@reddit
But you see that's the point. By avoiding bankruptcy in this way the possibility exists of the company turning around later. Keeps money out of the hands of the morally bankrupt lawyers who call themselves "receivers".
nutseed@reddit
oil futures went negative
darksoulsismylife@reddit
Short sale?
Ateist@reddit
How negative are we talking about - should there be some kind of limit, or is it completely unrestrained?
Who is the debt to?
What about companies (that have shares) buying shares in other companies - wouldn't it mean that one sufficiently negative company can take out your whole stock market?
cogra23@reddit
Have an annual fee (tax) on every stock. Make it cost money to hold. This could work. The only issue is there is no lower limit. Ordinarily the stock would be de-listed at zero.
zbignew@reddit
They’re de-listed from most exchanges if they stay under a dollar for too many months, so companies do reverse splits.
If they have a legit negative market cap… I don’t know where they go.
Fragraham@reddit
A stock is supposed to be partial ownership of a company, so yeah if a company owed more than it was worth, I guess shareholders could own the debt too. Of course normally a stock is just delisted at zero. A company with no or negative assets is typically dissolved at that point, though some companies have pulled a comeback from delisting.
zbignew@reddit
It’s essentially possible now. It’s called “piercing the corporate veil”, and it happens rarely, but fast and hard when a corporation is actually a fraudulent veneer over a single person’s assets and actions.
So, like, if you own a corporation and you pay your mortgage with corporate bank account and you run over a pedestrian with the company car, you can’t say, “sorry, MeCorp is bankrupt.” They will just take your house, even if it’s owned by you and not MeCorp.
Those of us that hate corporations do occasionally toy with the idea of prohibiting corporate bankruptcy. If your shares in Exxon put you at a further risk beyond the value of those shares because Exxon is hunting and killing Amazonian tribespeople, maybe that will drop Exxon share prices and incentivize them to behave differently? Maybe?
Boomshank@reddit
My understanding is a corporation can't ever owe more than it's worth. It's illegal.
That's what bankruptcy protection is for: it's a court ordered period of time where they have permission to be in the red for a short/finite amount of time.
CharmingTuber@reddit
That...makes zero sense
Boomshank@reddit
Sorry, my misunderstanding.
If a corporation is insolvent (it owes more than its assets) creditors can file for bankruptcy of that corporation.
So, while it's not illegal, it can be forced into bankruptcy.
curious_skeptic@reddit
It would only work if the owners actually HAD to pay off the debt, rather than just going bankrupt.
SalmonApproved@reddit
did you get inspired by karma on posts
inio@reddit
I think the most logical way to make this work is to cause ownership of a share to expose you fractionally to the company's liability. If they file for bankruptcy, the assets of every single shareholder are suddenly available (up to their fractional share of the debt).
In a situation where bad things are clearly happening but there's no actual outcome yet I could see share prices going quite negative.
mercury_pointer@reddit
Based.
Rare_Specific_306@reddit
Makes no sense, is illogical, serves no purpose, and is completely crazy. Take my upvote
EVOSexyBeast@reddit
It practically already exists, pretty much the same thing as selling naked puts.
_matt_hues@reddit
This is almost what shorting a stock is
Laserlight_jazz@reddit (OP)
Imagine the shorting possibilities if stocks could go negative though
_matt_hues@reddit
I cannot