<<Where's the other side of the hedge?>>
Charlie, I do not know, as I have not studied derivatives.
What I do know is the 'commercial hedgers' are considered the 'smart money' and rarely wrong. Having closely studied dozens and dozens of futures charts for financial instruments, currencies, grains, metals etc., I can say from my own experience, that when the small specs are in one opposite extreme position (in this case, they are net long) and the commercials are in the other opposite extreme (they are net short), the markets almost always move in the direction of the commercials.
In the case of the S&P 500, the magnitude and the delta of the two respective positions are without precedent. Each of those individual contracts is backed by about (depending on the brokerage house) $23,000.00 in margin money for each contract ... meaning that the commercials are short the S&P to the tune of almost 2 billion dollars.
Besides my analysis and views of the degrading macroeconomic conditions in the U.S., and around the world, this large delta in the positions of the commercials and the small specs led me to start buying puts on the S&P last July.
Disclaimer: The above is my personal opinion. I recommend that you do not base your investment decisions solely on any one person's views or analysis (including mine). Do your own research and take personal responsibility for your investment decisions.
Ken Wilson |
