Porter Davis, 20yr vet TSE Gold opt/spec. for ABX & a cpl other major TSE firms posted this on SI about 4 months ago.
If you won't listen to me, maybe you'll at least give pause and listen to him, for you are just a tiny frog in a grrrrrrreat big POG-pond, Hutch and have a lot to learn!!!!
and I joyfully quote:
5/26/98
Hi, Porter, I learned that GT global has a fund (Canadian Income Class) that uses covered calls. I was told that they used off the market options (written for the fund by large firms).
How many of Canadian options are traded this way? Thx, Will.
Porter's reply:
Will, I assume you are referring to the 'over-the-counter' options. The sad fact is that for every option traded on the TSE there are probably 8 or 10 traded "off the floor" or as we say, OTC. The big firms that engage in this take a huge third-party credit risk (remember Confed Life?), plus they carry an un-quantifiable, but huge, market risk 'off-the-books'. If they, for example, sell 1000 TXO puts to a third party OTC, they may hedge by selling 80 TXF futures.
The problem comes if there is a market 'break' like last October or as in 1987. If the T35 falls, say 25 points, they are no longer hedged...they must sell more TXFs of TIPs or TXO options--basically anything they can find a bid for. Multiply this by several firms here
(and dozens in the States), and there is an almost unbelieveable selling that would appear in a severe break. Sure gives me pause...
The very NEXT day, Porter was back on his thread with the following follow-up commentary...very appropo to this discussion:
5/27/98
Au traded down this AM amidst turmoil in Asia, a sharply delining $ in Europe, stock markets crashing in Europe, Asia & US and a developing banking crisis in Japan. The yen was also down sharply this morning.
So to what do we owe this recent unraveling of the Price of Gold?
In a pattern that's become all too familiar to gold investors, the POG plummets in the face of OPTIONS EXPIRY/FIRST NOTICE WEEK as a time when POG is going to plummet. This, after all, is the age of paper -- paper contracts on paper contracts on paper contracts. To call it a house of cards would be a kindness.
So each month, in order to keep the bullion banks & trading houses from going under, these derivative positions have to be protected.
So, Will, go out in the future and short the market prior to these important dates, get the hedge funds to pile on, and you've got a declining price gold market. And, so it goes."
*************
There you have it, Hutch, an option specialist I admire
have made money with,
and upon occasion,
saved money by listening to,
an options player who is honest, LIKE MYSELF,
who speaks of options' very existence affecting the PRICE OF GOLD as well as the gold stocks which he is personally involved with.
No "smoothing volatility garbage" evident in his presentation of facts.
Now,
YOU HAVE A CHOICE:
you going to continue to stick your head in the sand, Hutch and tell us you never lose a dime and that options are the safe infallible way to make an honest buck and don't hurt the price of gold?
Or are you going to dig a little deeper,
get a little more honest with yourself and those who ask for and risk on your options advice in your "company" that you like to brag about in your profile, and in your various options postings?
Hmmmmmm....
Think I'll put my 10 C notes on Porter, thank you very much!
Ole Porter didn't get to stick around in the Gold Options biz by lying to himself or others. Suggest you don't try it either! |
