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Strategies & Market Trends : Bonds, Currencies, Commodities and Index Futures -- Ignore unavailable to you. Want to Upgrade?

To: stock2005 who wrote (7878)	10/10/2005 9:09:58 PM
From: Real Man	Respond to of 12411

What happens is that when a lot of puts shorted cheap (low vix), the hedging of these puts is not adequate for a serious downdraft, since the hedging goes along the lines of Black-Scholes model, which does not require much hedging when implied volativity is low. Then, when the serious downdraft happens, implied volativity rises sharply, which results in more hedging, so futures get shorted, an automatic computer trade. A few more rounds of that, and we have a very serious slump.