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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Alan Bell who wrote (6210)	7/26/1998 8:46:00 PM
From: MrGreenJeans	Respond to of 42834

Alan <<My perspective was that raising the margin requirement would tend to inhibit the ability of highly speculative "investors" from trading as much. This would inhibit the creation of an artificial bubble by making the market relatively more controlled by the long term investor.>> I agree. No argument here but the fact that Greenspan has not this taken action to date suggests to me he does not think this is a credible policy. In fact, the more I hear him talk the more convinced I am he would much rather raise short-term interest rates than alter the margin requirement. Trading as you state is one part of the equation, purchases at high equity prices which supports these prices by the public also keeps an artitifical bubble or percevied bubble alive. <<Also, you suggest that option trading would not generally affect market level. If I understand the option process correctly, the option market maker will try to maintain (for himself) a market neutral position and will do so by buying the underlying security to hedge the option sold to an investor.>> That is the textbook case and there are a few market makers that practice this but in reality the vast majority of market makers find themeselves long or short over periods of time. << So someone buying an option could push the market up just as if they had bought the security.>> Or push the market down if they sell the security but I find these moves are in reaction to not the cause of long term stock market moves. Options react to stock prices; generally speaking stock prices do not react to option prices or moves. There are occassions where the price of a call may rise, speculators may believe there may be a takeover, and speculators will buy the calls and the stock of the company pushing the stock price up...but these moves are generally short-term in nature.