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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: marginmike who wrote (146563)1/28/2002 12:16:59 PM
From: LLCF  Read Replies (1) of 436258
 
You know what I love about FNM??? Their postion of being long mortgages [short the refinance pooot] is like having negative gamma options position. As rates fall they have to keep hedging in long bond futures [note their hedge losses of a billion $ I think it was??] and if they start backing up again they have to reverse throttle and go the other way. Now, as rates go down [bond rally] the market is typically orderly and gaps seldom. As they go back up...... ho ho ho, they're going to get killed on gaps and lack of liquidity IMO. Meanwhile, if a trader on an options exchange has a position like that the clearing company looks at 10, 15, 20, 30% gaps in those positions to make sure the account can weather those types of storms. But FNM??? No regulation, no oversight.

DAK
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