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Pastimes : Ask Mohan about the Market
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To: Bilow who wrote (11855)12/18/1997 11:04:00 PM
From: Bilow  Read Replies (2) of 18056
 
Regarding my comment on the Fed and the S&P expiration.

I should of noted that this is under the assumption that the
Fed bought futures on October 28 in order to save the market,
and that those futures were for this expiration. These are
all rumours, not necessarily true. (But I believe, of course)

The rumour further is that someone is letting their long positions
in the futures expire instead of rolling them into the March.
This would mean that the Fed would take the cash (their
intervention as of now would have been profitable) instead
of selling their position and establishing a new one.

The problem is that the Fed's counter party (presumably the
market maker) probably hedged the transaction by purchasing
stocks. This arbitrage is supposedly what drove the market to
its highest point gain ever on October 28. But if the Fed were
to let its position settle tomorrow, the counter party will have to
unwind its stock position as well. The effect on the market is
that all the stocks the Fed bought (through the hedging
mechanism) last October would go on sale (at the opening
price?) tomorrow. Not pretty.

And all speculative in the worst way. Tomorrow will probably
be just another dull day, say 200 points straight up. On the
other hand, some of the dipsters I personally know are out of
money and underwater. My suspicion is that we've used up
at least half the dipster capital bank.

-- Carl
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