The stock market of today in the US has become a manipualble market by large conglomerated hedge funds. They manipulate the market moving the whole market up and down 5 - 10% buying and selling in a matter of a few days and then cash in on calls and puts accordingly. If the law was that you could not own the stock or conspire to own it and manipulate it and own options to profit from that also, wouldn't that provide for a smoother common investor? Is it really necessary to shake off the little guys and take all the profits for themselves....the Hedge Funds, I mean? Doesn't that seem immoral?Zman, a corrupt hedge fund(s) because it is obviously a collusion, can raise and lower stock prices and hedge their positions to make money off the rising and falling prices. Their leveraged positions makes them invulnerable to any small investor, especially in large volume trading. This is where the money is to be made. Even a 2% change in a less volatile stock can make them quick change. This is not right! If they remove their money, sell the stock, it should be for good reason, not to make profit from the rise and fall by leaps and bounds that they or they and another outfit caused.It is not right and we both know it!Were it for only small investors Tiescore, you would be absolutely right! Since we live in a society with "Hedge Funds" who drive the price of a stock beyond volatility at will when they want to, it is highly questionable and I feel it should be illegal and tracked and prosecuted! I plan on brining this up to the Obama campaign!

If this is for an Econ. class you are headed for an F.

There are already laws against manipulating stock prices. Prohibiting puts and calls by holders of a stock ould actually prevent investors from being able to take advantage of some of the more sophisticated strategies. It would be overkill, throwing out the baby with the bath water.

use this thought to come up with a personal solution n u will be fine.

The answer by stevemorris1 is right on target. Let me expand upon it further.(1) It is already illegal to maniplate stock prices.(2) If you buy a stock and you buy a put to protect yourself from a possible drop in the stock price, that is called a hedge. Hedge funds got their name because they hedge. If hedging was not allowed there would be no hedge funds.(3) If hedging were not allowed there also would be no listed options traded. Market makers, or "liquidity providers" as they are sometimes called, have to hedge their options positions with stock positions or they would have unacceptable risks. Without liquidity, options trading would cease.(4) The type of market manipulation you are talking about is nearly impossible to do profitably. There are already limits on how many options one party can have on particular underlying issues, so the amount that can be made from options on a particular stock are already limited. Also, the only effective way to drive stock prices up or down is to buy or sell a large number of shares. So, if a stock is fairly priced and I drive the price up 10% by buying a lot a shares that means I piad 10% more than fair value for some of those shares. When I stop buying the share prices are going to go back down and I will have a 10% losses on those shares. While I agree there are some imoral aspects to hedge funds, I do not consider the ability to hedge one of them.

The whole purpose of the options markets is to allow investors to modify their risks to suit their needs. Kinda hard to modify the risk of an asset you don't own. Also what most layman (and by laymen I mean inexperienced derivative investors who can't think out why they are getting burned) see as market manipulation is actually just arbitraging. Observe --- we have XYZ at 99.... the 100 strike calls have a time value to them, lets say its 2 dollars, and since its out of the money there no intrinsic value. OK now its a few hours before expiration and neither the stock or the option have moved & you have some cash what do you do? Yeah I'm buying the stock at 99, and writing calls for 2 bucks... because worst case I keep 2 bucks and get the stock called away at 100. (OK worst case is stock drops to zero in a couple of hours but you see what I'm getting at). So I and everyone else sees this and starts writing calls, supply & demand forces take hold and start pushing that 2 dollar premium down. At the same time supply and demand forces take hold of the stock at 99 and start pushing it up... This will go on as long as there is a "riskless" profit to be made... and where will that force our two prices to at expiration, because of transaction costs it will typically net out at an option value of zero and a stock price at the strike price. (This is a rather simplified example)Deratives actually make financial markets run smoother, be less voilitile, be more liquid, and allow for greater flexiblity for investors on managing risks.