Question regarding the uptick rule.

Factual Questions
1

Hi,
I have a question regarding the uptick rule for trading both stocks and options.

As I understand the uptick rule, if I short a stock I have to buy it back at a rising stock price. Let’s say I short sell a stock at $65 and buy back the shares for $40.

But:
Does it really happen like that or would the price be going up as I buy back the shares? Would the price be exactly $40 or above $40 when I buy them back?

Since I couldn’t find any examples played out online, is the following formulation correct?

“If the price drops, you can buy back the stock at the lower price and make a profit when the share prices rise again(???). On the other hand, if the price of the stock rises, you have to buy it back at the higher price, and lose money.
”

I look forward to your feedback
davidmich

2

AFAIK, the uptick rule applies only to selling short, not covers or options. The idea is that a stock price can be forced down excessively by sheer selling volume when there’s low demand, but that sales on upticks require eager buyers. (An “uptick” price is any price higher than the last non-equal price.)

The Uptick Rule was in effect from 1938-2007; after the 2008 crisis, some wanted it reinstated. Opinions differ as to whether removing restrictions on short-selling improves price discovery or just encourages volatility and mischief.

3

From memory the uptick rule was put back in force, temporarily, for some sectors. Ach, a quick Google states that was just rumored, in fact short selling was banned on 799 financial stocks only from 19 September 2008 until 2 October 2008.

On further reading the uptick rule was put back in place in amended form; it only applies to stocks when they are down 10% on the day - this is called a ‘Short Sale Circuit Breaker’. From a brief look septimus’s description of the rule still holds true, once a stock is down 10% on the day.

4

One bitten, twice shy ? The sellers who follow your lead won’t be soon interested in a stock they’ve already been bitten on ! In fact, you are buying the shares that you have tricked the owners to devalue…