Thursday, May 10, 2007

Is this the definition of market neutral?

Quote:

"
The SEC alleges Amaranth unlawfully sold securities short in offerings and then covered those positions with securities bought in the offerings."

To me, it sounds like a cookie jar. But what exactly is this maneuver supposed to gain? You take both long and short positions in the security then cover the shorts with the longs, instead of purchasing them on the open market. Convenient. So I guess it just becomes an arbitrage, taking enough of a long (or short) position with enough leverage (hopefully) to goose the return on either directional move. Still sounds largely like a waste of time to me, as if someone wasn't sure which bet to make. (In which case, you would think the decision is to move on to another security.)

*shrug*

Until next time...

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