Waiting for the big Kahuna Message Board

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Strategies & Market Trends : Waiting for the big Kahuna

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To: William H Huebl who wrote (17216)	4/25/1998 6:19:00 PM
From: Bonnie Bear	Read Replies (1) of 94695

Bill: re computer trading: from time to time Yahoo (and other sources) publish how much of the volatility is from index arbitrage and who is doing it. This is huge business- note the brokerages are up almost 100% as a group in 12 months. I've seen figures as high as 40% of the volatility is from computer trading. I assume that the brokerages trade brokerage stocks for maximum profitability so will run their stock price up and sell at max profit before a downturn. I assume the large brokerages also compute put/call stats on individual stocks so they can set up the volatility to maximize the profitability of the options to the brokerage (and minimize them to the retail client, much like a casino does). Obviously there is an interest in the banking sector to merge the fastest trading houses with the largest mutual-fund and pension money flow. It's scary- there's nothing illegal about it. The pension plans are overfunded and nobody will mind if the gains are somewhat less than the S&P and a few percent is missing for management fees to boot.

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