In his letter, Ackman said he sold holdings in Sears Holdings Corp, Canadian Tire Corp Ltd and Austrian Post because the companies each had controlling shareholders.

He said one of his company’s important competitive advantages is the ability to force change at companies.

“Other than in special circumstances, we do not expect to make investments in controlled companies in the future,” he wrote.

Ackman sells stake in AIG, calls it a mistake - reuters.com

The Securities and Exchange Commission has rules that limit the use of short selling, by which traders sell stock they don’t own. But Dow Jones Newswires has found cases of market makers skirting those rules with a trade involving stocks and options. It enables them to refresh short positions without having to deliver the stock within six days, as the SEC demands.

The practice isn’t common, and the opaque nature of the options market means it is impossible to identify which market makers are doing this. Nevertheless, the Financial Industry Regulatory Authority told Dow Jones Newswires it has an “active docket” of such cases it is examining.

The trade works like this: A market maker who needs to cover a short position buys the stock from person A and delivers it to person B. The market maker then sells “calls” to person A — options that convey the right to buy a similar amount of stock. Since the market maker is selling the options, he is now in a position to sell the stock. After a day or two, person A exercises the options, obliging the market maker to deliver the shares, leaving him with his original short position.

Since August, Dow Jones has reviewed more than half a dozen cases where this trade appears to have occurred, involving the stock of companies such as Sears Holdings Corp. and American Capital Ltd.

The Financial Industry Regulatory Authority also is reviewing such cases. “These would be sham transactions used to make sure that the market maker maintained its hedging short-stock position,” said Tom Gira, executive vice president for market regulation at Finra.

Tactic Lets Traders Dodge Rule on Short Selling - wsj.com

From WSJ: The German sports-car maker said Friday that its pretax profit in the fiscal year ended July 31 soared 46% to €8.57 billion euros, or about $10.9 billion. Eighty percent of that came not from making cars but from sophisticated financial instruments connected to a protracted takeover bid Porsche Automobil Holding SE has been pursuing for a company many times its size, Volkswagen AG.

The vehicle: “cash-settled options.” The buyer of regular stock options gets the right to buy or sell stock at a certain price by a certain date. But in cash-settled options, as the name implies, the buyer gets the right not to stock but the cash difference between the options’ “strike price” and the market price of the shares when the options are exercised.

Porsche began buying cash-settled options tied to VW stock in 2005, when VW’s share price was below €100. If the price rose, Porsche could exercise the options and receive the difference between the lower strike price and the higher market price. It could then use the money to buy VW shares.

In Germany, an investor needn’t disclose ownership of any size holding of options if they are the type settled in cash instead of shares. That allowed Porsche to build a large stake in VW while keeping the rest of the market unaware of its activity.

Such options have one other important twist: Banks that underwrite them typically hedge their exposure by holding actual shares. That takes these shares out of circulation.

Three things to keep in mind:

1. SHLD’s repurchase program includes the purchase of call and put options:

Share repurchases may be implemented using a variety of methods,
which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods.

2. Repurchased shares are still carried on the balance sheet.

As of August 2nd, 2008, SHLD carries $4,798B in repurchased stock on the balance sheet. Is SHLD holding the shares with the intention of reselling the shares at a higher price in the case of a massive short squeeze? With over 20M shares short and majority of outstanding shares held by long term value guys, how will shorts cover their shares?

3. Outstanding shares in the open market

Please read the SHLD short math covered extensively by ValuePlays and this blog.

Only 126M shares exist in the open market. Under the existing repurchase program, SHLD may have repurchased up to $206M of shares (3-4M shares at today’s prices). The total share count may be reduced to fewer than 122M shares. Based on my analysis of SHLD institutional share holdings, insiders and various value funds including Fairholme and Legg Mason control approximately 122M shares. We are getting close to a tipping point in terms of liquidity of SHLD shares.

Today, I bought 40 Dec contracts of SPY Puts with a strike price of $85. I believe we will retest and break through the 850 levels before Dec options expiration. The three main catalysts are:

* Heavy selling due to hedge fund redemptions in mid November
* Institutional tax selling before the end of the year
* Lower seasonal year-end volume allows for easy manipulation of the market

Even for a billionaire hedge-fund titan, losing $30 million an hour has got to be a bummer.

That’s what Eddie Lampert, the chairman of Sears Holdings, has experienced with just his nine largest holdings since Sept. 19 - over just 26 trading days.

His massive holdings in Sears Holding, the parent of Sears and Kmart stores, and in AutoZone, AutoNation, Citigroup and five other companies have lost $5 billion in value over that time, based on the size of the holdings as of June 30, according to his 13F filing with the Securities and Exchange Commission.

LAMPERT’S A HUGE LOSER: $30M/HOUR - nypost.com

Bruce spent about an hour talking about the fund, stock market, and investment ideas. He includes about a 20 minute Q&A. Definitely worth a listen for any value investor watching the markets today.

800-642-1687 and the conference ID is 68956543

The retailer is opening at least 50 showroom-sized stores dedicated to home appliances this year in high-traffic strip malls. It has also boosted training in product knowledge and energy savings for its appliance staff.

“We’ve got great things to tell and we just haven’t been saying them in a way that has been clear to the consumer,” Steve Light, appliance general merchandise manager for parent Sears Holdings (nasdaq: SHLD - news - people ) Corp , told Reuters in an interview at company headquarters.

“We’ve got a vision .. to re-engage and rebuild our relationship with the American consumer,” said Light, who took up the post earlier this year.

Sears says it will beat any competitor’s appliance prices, even if it means looking them up on the Internet while the shopper is in the store. In October, it will begin a program offering zero percent financing and no payments for 12 months every day.

This week, the company launched an advertising campaign aimed at cash-strapped consumers who are seeking greater value for their money. Thirty-second TV spots feature an “appliance blue crew” touting low prices, financing offers and next-day delivery to most U.S. ZIP codes.

INTERVIEW-Sears woos appliance shoppers with new stores, ads - forbes.com

The New York Stock Exchange added seven more companies on Thursday to the list of financial institution shares that are not permitted to be shorted, ahead of Friday’s market open.

NYSE had added nine firms ahead of Thursday’s market opening. In the last two days the Nasdaq Stock Market has added three stocks, including Sears Holding Corp, and dropped one from its list.

NYSE adds 7 companies to short-selling ban - reuters.com