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What's Next, Banning Long Buying?

We have banned SHORT SELLING in financial stocks! And if that doesn't work, traders say, SEC Chairman Cox will next week announce that they are banning LONG BUYING as well.

Here's the sweet part: it's a quadruple witching expiration!!

Options desks are frantic, because everyone has to cover their short calls in financials.

Remember how it works: when a trader buys a put, it means a seller (a dealer) sells him the put. The dealer is now LONG the stock (selling a put means you are long the stock at the strike price). To protect themselves, the dealer SHORTS the stock.

What's the effect of this ban? Market makers can't short directly? There appears to be no exemption for market makers. I find that hard to believe.

The bottom line: higher prices for puts (if anyone will sell it to you!), and a lot more volatility.

And here's a post from 8 pm last night:

S&P futures, which have already moved up 15 points in after hours trading, moved up an additional 5 points or so after 7:30 pm ET, when word broke that the SEC intends to implement a temporary ban on short-selling, and that the Feds are considering an FDIC-type plan for money market funds.

Aside from that news, there was considerable debate at the close among traders about how the Congress was going to pull off an RTC-style rescue, or any rescue, when they are planning to wrap up their work in a week or so and hit the campaign trail?

We got the answer this evening: House Speaker Nancy Pelosi said they are willing to go beyond the September 26th adjournment date to consider legislation.

Which is what they needed to say, but as usual, politics creeps in here: some traders think the Republicans would be glad to tie up the Democrats in Washington, since they are fearful the Dems are itching to get on the campaign trail to beat up the Republicans on the economy.

Seems to me like the Dems, who control the Congress, are not exactly standing tall themselves.

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- The Dow 30 at a Glance

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CNBC's Names in the News:

HSBC

Washington Mutual

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Questions? Comments? tradertalk@cnbc.com

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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