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Circumventing SEC Rule 201 short sale restrictions with options

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  • Switzer, Lorne N.

Abstract

This paper provides evidence on the ease and relatively low cost, relative to the potential benefits of circumventing the short selling circuit breaker regulations (SEC Rule 201) using options. Stocks with traded options react more negatively on short sale restriction trigger days relative to their counterparts without traded options. Short sale circuit breaker events are associated with increases in put and call options spreads as well as put-call parity violations. The paper estimates a discount of a synthetic short position to the prevailing stock price when Rule 201 is triggered of about 3%.

Suggested Citation

  • Switzer, Lorne N., 2023. "Circumventing SEC Rule 201 short sale restrictions with options," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s154461232300363x
    DOI: 10.1016/j.frl.2023.103991
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    References listed on IDEAS

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    More about this item

    Keywords

    Short selling circuit breaker; Options trading; Trading costs;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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