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Strategies & Market Trends : Classic TA Workplace
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To: The Freep who wrote (51042)8/23/2002 12:14:37 AM
From: mishedlo  Read Replies (1) of 209892
 
You state that as long as people keep buying calls, delta hedging will take us higher. Since calls always outnumber puts, I am confused as to why we don't always trend higher.

If people buy calls and prices fall, there is no need to hedge the calls. If prices keep rising in the face of enormous call buying, the call sellers have to hedge(go long) to protect themselves.

I do not believe that hedging is always immediate unlike some. When things get out of wack, we get a little gap down or up or upgrade or downgrade or whatever it takes for those that need to hedge to do so at a "convenient" price.

Generally I am a believer that for the most part, such "corrections" of this nature happen closer to expiry than not. BUT we have had an enormous ramp and some of those call sellers might not have much of a choice than to hedge long.

There is no question that delta hedging took us higher this past OE as buying continued aand the rally could not be contained.

If and when the call buying dries up and we start headed down, the unwinding of those hedges will add more selling pressure. Of course, once again the public believes "the bottom is in" and we are back in buy the dip mentality. This could make the situation choppy for weeks, as call buying exhausts itself and a distribution top is in.

Does any of this make sense?

M
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