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Strategies & Market Trends : Waiting for the big Kahuna

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To: W. Clinton Terry who wrote (12341)	12/27/1997 2:34:00 PM
From: Jack Clarke	Read Replies (2) of 94695

Clinton: Yes, as I understand it the P/C ratio isn't the great contrarian indicator it used to be. Also, so many money managers and institutions who feel it necessary to be nearly 100% long in equities are holding OTM (out of the money) index puts as "insurance" against a market decline. Two weeks ago (I think) Barrons had an excellent article by Andrew Smithers about the danger of using options as insurance. It may not work or even fail miserably if everybody wants to cash in on them at the same time. Remember "portfolio insurance" with S&P futures in '87? These had the effect of worsening the decline. Smithers went into great detail about the mechanisms involved, and I heartily recommend your digging up the article if you can. Basically, if everybody's house burns down at once, the fire insurance won't be enought to pay off all the subscribers. Jack

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