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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: t2 who wrote (82532)	6/20/2002 7:33:13 PM
From: augieboo	Respond to of 99280

T2, sounds like Ron got on Mish's last nerve, so I'll try to give an answer to this one from my understanding of his theories. I think that it's not the fact of being far from Max Pain on the QQQ which will cause tankage. It's that, being far from MP, Da Boyz have no reason to hold the thing up any longer. Instead, they perform "Delta Hedging," which is a concept I don't fully understand, but which, I believe, involves buying options of their own to cover the options they are going to have exercised against them -- in effect, zeroing them out, net-net wise. (I assume this costs them more than it would if they had been able simply to wipe out all options in the first place, but less than if they had to pay off without it.) To sum up, without Da Boyz holding the piggy up in the air, it will continue to plunge of its own bloated weight. HTH, augie p.s. Mish, I hope I haven't made an impossible mess of this. (:

To: t2 who wrote (82532)	6/20/2002 7:36:33 PM
From: mishedlo	Read Replies (1) \| Respond to of 99280

Not sure where it closed but I believe I saw 28.95 print intraday. Then we had the ORCL "bounce" that probably got QQQ up to about 29.20 or so AH. As for why the plunge, once pain levels are broken (in expiry week) any subsequent breaks of "options support" (strikes where significant numbers of put options are held) will cause delta hedging. Right now you can see some lines forming, like INTC at 20. Relatively large numbers of puts there (and of a recent nature) so they will try and defend that level. If it goes, the put sellers have no choice other than to hedge short, which of course sends the stock lower. This week we might be seeing a combination of delta hedging, fund outflows, and investor panic all at the same time. Not very pretty. M