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Strategies & Market Trends : Buy and Sell Signals, and Other Market Perspectives

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Jan 12 4:00 PM EST

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To: GROUND ZERO™ who wrote (22305)	7/28/2011 8:58:59 AM
From: Berk	Read Replies (2) of 221644

In 1987 you could have been right on the market by selling everything on Friday the 16th but the person that you sold to may not have had the funds to deliver on Monday the 19th, the Crash day. The domino effect comes into play as numerous failures hit at once and everything ripples thru the system. The speed of the event prevents an orderly market from happening. This is why First Options went down, too many hit at once and the Clearing Corp couldn't handle it. Something to keep in mind with options is that a lot of strategies depend upon statistically normal behavior and Black Swans are unusual events which aren't accommodated w/i ordinary volatility premiums. Typically a great number of Market Makers sell out of the money options and it's normally quite profitable but not always. I would suspect something similar happens with futures, the trade is only as good as the guy on the other side, the counter party. Normally the Clearing Corp would take up slack in the event of a normal failure, the problem is the abnormal failure, the Black Swans.

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