Scott, thanks for the Inger/Katz post...
Interestingly, McMillan illustrated an SPX/VLI cross-market spread in his latest newsletter:
optionstrategist.com
He didn't recommend executing the spread yet. So, a (selective) montage of analysts is that the broader market has experienced decline, while the Large Caps haven't yet caught up. [Duh!]
While I'll maintains shorts in the less-liquid, more speculative issues, I'll likely beef up longer-range DLJ shorts should some rally occur next week -- which IMO will happen later in the week vs. earlier.
To elaborate, I suspect that funds are becoming less liquid and may be resorting to higher leverage. While the more speculative stuff is being abandoned in favor of BIG money, ultimately the Large Caps will follow in a sort of crescendo. Intuitively, we expect "safe-havens" to weather the storm. However, if official size-and-weight hedges are being placed, they're likely against the largest capital pool. Under such assumptions, sharp/short rallies would actually exacerbate the problem by forcing adverse margin squeezes (against DLJ issues).
As you can see, this is more or less rambling. But, the effort is to encourage dialog.
Have a restful weekend,
Alan |
