Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Henry Volquardsen who wrote (210)	9/27/1998 4:37:00 AM
From: Larry Weiner	Read Replies (1) \| Respond to of 2794

If you really want to get technical, a CMO is a group of bonds structured from whole loan mortgages, mortgage pass-through securities, or other CMO tranches. The CMO bonds commonly thought of as "derivatives" are inverse floaters, inverse IO's, PO's, support bonds, etc. These were the types of bonds that blew up in 1994 and took down Askin and a host of others. My read of the LTCM situation (from the NYTimes and WSJ) is that these types of bonds were not part of the Fund's strategy. It sounds like they were doing simple mortgage-treasury spread trades. Betting on a tightening mortgage-treasury spread has been a losing trade this year, and they must have been doing it in enormous size, so they were killed by the leverage.

To: Henry Volquardsen who wrote (210)	9/27/1998 8:55:00 AM
From: Bobby Yellin	Read Replies (1) \| Respond to of 2794

Hi Henry what is your take..is this really crony capitalism or is it the rats trying to buy some time while they try to unhedge their positions? What would one have to look at to see if there are massive unwindings going on? or if it is fun and games as usual? Also do you think confidence has now been shattered? or are egos so huge that some hedge funds view this as a platinum opportunity?

To: Henry Volquardsen who wrote (210)	9/27/1998 10:41:00 AM
From: Mark Myword	Read Replies (1) \| Respond to of 2794

>>A CMO is a security in its own right and can be independantly priced. Yes it has optionality but so do convertible bonds. << Henry - I have seen this term optionality thrown around a few times, would you please enlighten us as to exactly what it means, and how it applies? Tia