This is sort of a follow-up question from: A few questions about stock investing

After reading Baerker's answer, an interesting thought came to mind. Can a market manipulator exploit the settlement period difference between stocks and options to cheat the market during a stock split?

Let's say a bad guy named Bob, does the following:

(1) Company A announces a stock split, and the ex date is on Day 2.

(2) On Day 1, Bob puts a sell order for 100 shares of stock A at $100. He does not own the underlying stock, however (not yet). Alice buys the 100 shares from Bob. Bob is supposed to deliver the shares T+2 days later, which is on Day 3.

(3) On Day 2, the stock splits 1:2. The price reduces to $50 as a result. Bob buys a call option which enables him to buy 100 shares of the post-split stock A at $50 each. He executes it immediately. As the settlement date for an option is T+1, Bob is supposed to receive the shares on Day 3.

(4) On Day 3, Bob receives the 100 shares ($50 each) from the call option he bought. He then immediately delivers these 100 shares to Alice, who pays him $100 per share. Bob pockets an ($100-$50)*100 profit - essentially doubling his money.

What stops a malicious market manipulator like Bob to cheat the markets like this?

1 Answer 1


Let's be honest here. Either Bob is your imaginary friend or you really want to do this for yourself, eh? :->)

What stops you from doing this is that the scenario you have laid out only exists in your mind.

If you sell 100 pre split shares to Alice, then you must deliver either 100 pre split shares (100x$100) or 200 post split shares (200x$50). The system does not allow imaginary friends to make the rules, not even if Ted and Carol are involved either.

PS There are no free lunches in the stock market unless one of your imaginary friends is buying :-)

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .