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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (3567)	1/23/2008 1:40:44 PM
From: Real Man	Respond to of 71454

Tail wags the dog, right. I guess you can say that making market (selling) in equity options is equivalent to buying a bond with a risk premium determined by volatility. Extreme moves cause losses due to lack of speedy hedging and exponential expansion of the risk premium associated with volatility. And if you are 1000x leveraged, .... Since demand for put options skyrockets during such events, you can pocket enormous premium if the market recovers. If it does not, well... notional can become real. Not to that degree, but fast moves can bankrupt a lot of slow folks in the business. There is "no perfect hedge" in the options market, and this time is one of those times when the hedge really sucks. CTAs selling options are time bombs - they pocket 40% annual returns when things are normal, but during a booboo they get wiped out along with these returns, and then some.