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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: William H Huebl who wrote (76074)	7/21/2007 4:06:56 PM
From: Real Man	Read Replies (1) \| Respond to of 94695

Standard options selling strategies have been huge winners for the past 5 years, generating, perhaps, as much as 30-50% per year. These funds have been the top performers in the hedge fund industry. Selling puts in a rising market into volativity spikes is most profitable. Now these funds comprise, perhaps, as much as 1/3 of total 1.6 Trillion hedge fund pool. While such a huge pool of leveraged liquidity normally contributes to market stability and lack of volativity, we've seen what happens when just 1 bln. (LTCM) of these leveraged bets go soar. Now, I'm afraid, the threshold is a lot lower, which, perhaps, explains the sudden tankage the market took back in February after 3pm, after only a moderate decline, and the record lack of volativity we've seen in recent years. LTCM-like strategieas are standard in the world of finance, with only a minor variation (shape of volativity smile) for a particular brokerage firm or a hedge fund, which, perhaps, might explain why we see such strong spikes in the futures market, without involvement of conspiracy theories - they all follow the same signals. Now, I'm afraid, the risk is for a very large BK decline, in case we enter the "tail" of the probability distribution, at which point all such bets will have to unwind. I'm afraid, that threshold could lie around just a 2% decline (a day) nowadays, but that's just a wild guess based on what the market did on Feb. 27. Just my 2c.

To: William H Huebl who wrote (76074)	7/21/2007 4:37:49 PM
From: Real Man	Read Replies (2) \| Respond to of 94695

Also means Collar didn't work. Collar Rule Under NYSE Rule 80A, if the DJIA moves up or down two percent (2%) from the previous closing value, program trading orders to buy or sell the Standard & Poor’s 500 stocks as part of index arbitrage strategies must be entered with directions to have the order executions effected in a manner that stabilizes share prices. The collar restrictions are lifted if the DJIA returns to or within one percent (1%) of its previous closing value. The 2% collar rule threshold is set by the NYSE at a point level that is calculated at the beginning of each quarter. For example, on April 1, 2007, the average value for the DJIA for the preceding month (March 2007) was used to calculate a point level (rounded to the nearest 10 points). This resulted in the 2% collar rule threshold being set at 180 points.