9 replies to this topic

[Judo chop]

Can someone help out an investmentally challenged guy? Exactly how was LeChiffre planning to "invest" the money he took from the terrorists?

I get the general concept: Invest in airline stock > tamper with the success of the airline (ie. blow up a big, important prototype plane) > receive a high return > terrorists are happy and LeChiffre gets a nice commission.

What I don't understand is when he calls his banker instructing him to invest his newly acquired money, and his banker replies, "Are you sure, sir? Nobody expects this stock to go anywhere but up!"

This would mean that LeChiffre secretly expects the stock to go DOWN after he invests.

So, why would purchasing stock that's about to plummet be a good investment plan for him?

Well, obviously it wouldn't and I'm missing something here. What is it?

[Cody]

He was shorting shares. Here's how Wikipedia puts it (since I don't know anything about this stuff, either) -

In finance, short selling or "shorting" is a way to profit from the decline in price of a security, such as stock or a bond. Most investors "go long" on an investment, hoping that price will rise. To profit from the stock price going down, a short seller can borrow a security and sell it, expecting that it will decrease in value so that they can buy it back at a lower price and keep the difference. For example, assume that shares in XYZ Company currently sell for $10 per share. A short seller would borrow 100 shares of XYZ Company, and then immediately sell those shares for a total of $1000. If the price of XYZ shares later falls to $8 per share, the short seller would then buy 100 shares back for $800, return the shares to their original owner, and make a $200 profit. This practice has the potential for an unlimited loss, for example, if the shares of XYZ that one borrowed and sold in fact went up to $25, the short seller would have to buy back all the shares at $2500, losing $1500.

[Judo chop]

Ah, thank you.

Is this explained in the film, or are we to figure it out on our own? I don't remember (after 2 viewings) any mention of this detail.

[Cody]

A bit, it's not too in-depth. M's dialogue, "When they analyzed the stock market after 9/11, the C.I.A. discovered a massive shorting of airline stocks. When the stocks hit bottom on 9/12, somebody made a fortune. The same thing happened today with Skyfleet stock, or was supposed to.", "Somebody lost over a hundred million dollars betting the wrong way.". You're left to figure out exactly what shorting means, but it's enough of an explanation, IMO.

Edited by Cody, 14 December 2006 - 06:32 PM.

[Judo chop]

A bit, it's not too in-depth. M's dialogue, "When they analyzed the stock market after 9/11, the C.I.A. discovered a massive shorting of airline stocks. When the stocks hit bottom on 9/12, somebody made a fortune. The same thing happened today with Skyfleet stock, or was supposed to.", "Somebody lost over a hundred million dollars betting the wrong way.". You're left to figure out exactly what shorting means, but it's enough of an explanation, IMO.

Cody's the man. Thanks.

I will now be able to go into my 3rd viewing feeling completely and comfortably debriefed.

[R. Dittmar]

I'm not sure the screenwriters themselves were quite savvy enough to explain what Le Chiffre was doing. In addition to the mention of short-selling in the film, there was also a mention (by Le Chiffre's broker if I remember correctly) that the puts had expired worthless. Perhaps he was doing both, selling short and buying put options on the stock.

Actually Le Chiffre's personality points towards him preferring the buying of put options, and it works better for the plot too if that was what he was doing. Basically, a put option gives you the right to sell a stock at a pre-specified price at some time in the future. If you know the stock price is going down, you buy put options giving you the right to sell it at some price higher or equal to the current price. When the price has fallen some time later, you can buy at the low price and sell at your pre-determined higher price and earn the difference as pure profit. It's a highly leveraged strategy because you can use all your funds to buy puts. If you are short-selling you have to put aside funds in margin accounts and conform to other technical details that limit your profit potential. Of course, if you are wrong (as Le Chiffre was) then the puts expire worthless and you lose absolutely everything invested in them. You are totally wiped out. The financial limitations that surround short-selling would have insured that Le Chiffre lost only a fraction of the client's money rather than all of it.

[Four Aces]

Short, long, puts, etc., should be common knowledge among us sophisticated secret-agent types

Unfortunately, at least in the US, we are not taught enough about the ins/outs of personal or investment finance during our formative years, though many of us will wade through the muddy waters of this when we get into adulthood.

I think the money making plot of LeChiffre was very sound, given that he was planning on manipulating the "events". And just another great thing about this movie is that the younger audiences who do not know about this aspect of finance can now be stimulated to learn about the subject, and the same for us older folks who missed it along the way.

Great question!

Cheers,

4A

P.S. If you want to get into some scary stuff, start reading about hedge funds and the management thereof

Edited by Four Aces, 09 January 2007 - 07:05 PM.

[Judo chop]

Great question!

But better answers! I've been educated alright.

(glad to see they got you an avatar worthy of your name, 4 Aces...)

Edited by Judo chop, 09 January 2007 - 07:08 PM.

[FullMetalJacket]

He was shorting shares. Here's how Wikipedia puts it (since I don't know anything about this stuff, either) -

In finance, short selling or "shorting" is a way to profit from the decline in price of a security, such as stock or a bond. Most investors "go long" on an investment, hoping that price will rise. To profit from the stock price going down, a short seller can borrow a security and sell it, expecting that it will decrease in value so that they can buy it back at a lower price and keep the difference. For example, assume that shares in XYZ Company currently sell for $10 per share. A short seller would borrow 100 shares of XYZ Company, and then immediately sell those shares for a total of $1000. If the price of XYZ shares later falls to $8 per share, the short seller would then buy 100 shares back for $800, return the shares to their original owner, and make a $200 profit. This practice has the potential for an unlimited loss, for example, if the shares of XYZ that one borrowed and sold in fact went up to $25, the short seller would have to buy back all the shares at $2500, losing $1500.

That makes absolutely no sense.

[Four Aces]

...there was also a mention (by Le Chiffre's broker if I remember correctly) that the puts had expired worthless...

This is correct. On my 3rd viewing I was looking for this. There were 'puts' by Le Chiffre, or should I say 'putz'