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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: James F. Hopkins who wrote (128)	9/21/1998 8:30:00 AM
From: Daniel Chisholm	Read Replies (2) \| Respond to of 2794

I think the "fat tail" is what would bite the options writers. If stocks fall fast enough, the options writers' dynamic hedging can't get in fast enough. If (say) IBM gaps down $40 one morning, whoever wrote IBM puts is in for a world of hurt. They can't short IBM on the way down to cover themselves. The problem for a big firm, and for the options "system" as a whole, is if this happens to all stocks all at once. This of course is extremely rare (1987 was the last time), however I think this is the "catastrophe myopia" that the article was probably referring to. - Daniel