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| User Info | URGENT!!! LOOK AT AUG SPY CALL ACTION FROM $65 - $90 in forum [NotSoBreakingPrice]
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Genesis Posts: 66463 Incept: 2007-06-26 
Royal Flush! 
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Interesting..... its not US-specific..... That's even more ominous. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2007-08-25 19:00:39
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Alasbabylon Posts: 263 Incept: 2007-07-29 Banned
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Ominous, yes ! But what the hell do I know... I'm still trying to get over the shock of not being able to access this forum ? WTF is happening here ? Mystery trader bets market will crash by a third 16 Aug 2007 An anonymous investor has placed a bet on an index of Europe's top 50 stocks falling by a third by the end of September, as world equity markets plunged for a third day and volatility hit a three-year high. The mystery investor has bought put option contracts on the DJ Eurostoxx 50 index that will result in a profit if it plunges to 2,800 or below by the end of September. Based on the 2,800 strike price, the position covers a notional €6.9bn, and potentially even more using a market price of about 4,100 when the trades were done on Tuesday and Wednesday. The identity of the investor is unknown but market sources speculated it was either a large hedge fund hedging itself against deepening losses, or a long-only fund manager pressing the panic button to protect its gains. The investor has bought a total of 245,000 put options on the index. The September put option with a 2,800 strike was the most popular DJ Eurostoxx 50 contract yesterday, according to data from Bloomberg. > snip < http://www.financialnews-us.com/?page=us.... ---------- Last modified:
2007-08-25 19:15:56 by alasbabylon
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Mfh Posts: 1 Incept: 2007-08-25 SF
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Hi, new member here - not in the market currently, but this intrigued me so I came up with a hypothesis. Thoughts welcome, please tell me if I'm totally off base, I'm a young guy just learning about derivatives and investing. I believe there's probably a very simple explanation for this. A sizable hedge fund probably lost a bunch of money recently in the fixed income derivatives market, and their clients want out. So they're liquidating their long-term equity positions and calling it a day. They'll probably still come out somewhat ahead in the long run. In order to not destroy the wealth they have by issuing a massive sell-off of stock, they proxy their liquidation by selling a call option for a price close to the current underlying equity price (strike price + option price == stock price, if exercised). The people (perhaps the market makers who are obligated to provide a market) who buy these call options are effectively going long on the market without shelling out 100% of the stock price. They can plunk down 2/3rd of the purchase price today, and when the option expires, they buy the balance at the strike price, and are in the money as far as the stock has gone up from the contract date. The fact that there are people wiling to buy these call options signals to the market that there is still confidence that the underlying asset will appreciate in value (SPY, the S&P index fund). Nobody who does this for a living can possibly believe someone expects the S&P to fall by up to 60% (the 60 strike September option) in one month. It's actually quite a brilliant move, in my opinon. You liquidate your assets, raise a significant portion of your equity instantly, and get the rest when the option expires. You also effectively nullify the psychological effects of a large sell-off. I mean, these options are so deep in the money that the chance they won't be exercised is practically ZERO. Instead of dumping $2B of stock in the open market, they smartly carved up their sale into tens of thousands of mini-contracts between private parties. The trading floor will never suffer the effects of a sell-off. As for why this is "unprecedented" - how many multi-billion dollar hedge funds have liquidated before? Probably not more than a couple. Very simply, this is a divestment, not an investment. Someone is getting out of the market, and doesn't care which way it goes. They need their cash back. Professional traders realize this, and have acted on it by swooping up all the call conracts being offered. Nobody who does this for a living could possibly think someone expects the S&P to drop by over HALF of its value in one month. (S&P to 600 from 1400? That would happen if NY got hit by a nuclear bomb, maybe). 2007-08-25 22:55:36
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Beachcomber Posts: 524 Incept: 2007-08-20 
California
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I think the S&P trade was an arbitrage move. Perhaps the IV at different levels had gotten out of wack and somebody was betting they would snap back over time.
2007-08-25 23:55:40
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Kochevnik Posts: 227 Incept: 2007-07-30 Oregon
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Nice theory - but earlier in this thread we found out it was coded as a SPREAD trade and I don't think selling covered calls is considered a spread. As for IV - if you are deep ITM - the value of the option is ALL IV - there is no arbitrage possible. I said this before page 9 and 10 of this thread. This is an ITM bear call spread. Last modified:
2007-08-25 23:59:13 by kochevnik
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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Correct, if the coding is right. Therefore, it is either: 1. A true bet on a crash, which loses only transaction costs if it does not occur. 2. A cute way to write a huge loan on the back of the options MMs, albiet at a rather disadvantageous interest rate. The trick here is, if someone did that, why did they need to? ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2007-08-26 00:14:27
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Beachcomber Posts: 524 Incept: 2007-08-20
California
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So it's not possible for the IVs to be different at different strike prices?
2007-08-26 00:22:07
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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Of course it is. It not only can be, it frequently is. However, the data from these trades in the SPY calls indicates that they were all put on as spreads at exactly parity. In other words, $5 apart, $5 net credit. So - at expiration if the SPY is above this entire block, all that goes back as one is assigned and the other exercised. $5 in, $5 out. Problem is that its not a net zero because there are transaction costs. Therefore, its actually a lose. But if you need to write yourself a big check for a while from the market, or, if you really do think the **** might hit the fan, then..... ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2007-08-26 00:27:23
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Icliks Posts: 58 Incept: 2007-08-23
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Mfh: S&P to 600 from 1400? That would happen if NY got hit by a nuclear bomb, maybe>> Maybe. But the last thread I saw described toxin or bio. While looking for that, I found this... http://www.godlikeproductions.com/bbs/me.... i ---------- Mamma always said ... tinfoil is as tinfoil does, politicians never lie, and there are no backroom deals. 2007-08-26 00:34:47
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Beachcomber Posts: 524 Incept: 2007-08-20
California
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With respect to Genesis's last post, it would appear the September 90 to 95 calls are ten cents more expensive than the September 60 to 80 calls. The 85 calls are actually in line with the 90s. Nevertheless, there is a 10 cent profit to be made by shorting the 90-95 calls and buying the 60-80 plus a little play money on the side.
2007-08-26 00:39:50
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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No; these were done in the middle; what you see now does not reflect the price at the times were placed.
---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2007-08-26 00:52:25
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Cashncarry Posts: 3729 Incept: 2007-07-24
SoCal
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Quote:Maybe. But the last thread I saw described toxin or bio. While looking for that, I found this... Oh Geez, Chertoff can't find his own ass when the lights are turned off and he's gonna orchestrate a crippling attack on US infrastructure? That was entertaining. Sadly, if you were to post that link on Dailykos they'd eat it up and ask for a 2nd helping. ---------- "What's that burning smell, and why are we in this handbasket?..." 2007-08-26 01:57:35
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Stockmonger Posts: 2136 Incept: 2007-06-28 Orange County
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Can we please keep that godlikeproductions paranoid tinfoil **** out of here? They're talking about the earth reversing its spin in a couple days in another thread. That entire site is all disinformation, all the time, except when their idiot moderator (Trinity) tries to pump on Yahoo. That guy was trying to claim an early payoff of debt by some mining company that happened to clear through Wells Fargo as a sign that Wells Fargo was in trouble. "Well why would they want to pay off their most expensive debt?" LOL.
---------- occasionally I do like to see the other viewpoints of people not in my camp of theory, but I generally find it to be a waste of time. - Bear 2007-08-26 02:14:15
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Davidmerrill Posts: 17 Incept: 2007-08-26 Colorado
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Somebody sent me over here to get a look. http://www.suijuris.net/forum/attachment.... That was Monday, August 13 and people are still abuzz about all the "liquidity" the central banks of the world poured into the market to keep a little Chinese confidence. The key timeframe is thirty days, just like with the BOE this is all about: http://ecclesia.org/forum/images/suitors.... http://ecclesia.org/forum/images/suitors.... So I am expecting if we do not see some kind of pressure release then on or after September 11, 2007 - maybe taking a full year or maybe an hour like in 2001, we will start seeing the ripples become waves. Regards, David Merrill. 2007-08-26 17:32:48
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Gmak Posts: 10176 Incept: 2007-07-27
Re-inventing the future at the speed of time.
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David: It might help if you could post the most important paragraphs from your first link. Not all of us wish to register to see what it is. Without that article, the rest of your post is a little difficult to understand. Thanks. 2007-08-26 17:38:32
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Davidmerrill Posts: 17 Incept: 2007-08-26 Colorado
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I think that Request is only a couple paragraphs long. The important thing to note is how just before August 13th China was losing faith in the dollar and so the markets began to crash. Back on the evening after I published the Request, the Chinese markets "dipped" by 6.5% and threatened global repurcussions like in February - a dip of 8%. The central banks got good fast at pumping emergency liquidity into the marketplace to appease the Chinese and their lack of confidence in the dollar. The thing is how far below the cost of making a paper FRN can we hold out? Regards, David Merrill. 2007-08-26 18:01:56
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Alkrfrthsd Posts: 8 Incept: 2007-08-26 WA...not DC
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Been following this thread closely. How unlikely is a 30% "correction" in the next month? What does it cost to keep rolling these until spring? Could this be somebody setting a firewall in their fund IN CASE of a crash? They don't "KNOW" anything they're really just being prudent with the dollar hanging over a cliff by the last fiber of a vine. They can't keep printing unsecured paper Monday, Wednesday and Friday every week. When the presses stop then what? Would it really take a "terrorist" attack to set this straw man ablaze? Or just the Fed pouring more paper gasoline on it? 2007-08-26 18:30:34
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Rudi Posts: 167 Incept: 2007-08-18
London
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David - we cannot read the first link without signing in. The second links do not make sense. However, surely pumping money into the US system doesn't inspire confidence in the dollar?? 2007-08-26 19:07:37
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Rudi Posts: 167 Incept: 2007-08-18
London
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Surely a better conspiricy theory would be that the Chinese are setting up all these obvious bets on a market crash as a threat to the US as part of the ongoing trade hostilities/negotiations. (Lead paint / poison food / begging to buy securities etc.) In doing this they could be using it as leverage to ensure that the US government takes the fall for all the dodgy investments they have been selling them. In all liklihood I don't think we will know the reason why these trades have been made, until after whatever has happened does, if ever. Coming up with conspiracy theories for the reason behind it isn't really adding anything. The only real question is does somebody know something about what is going to happen, or not? Ps. The martians did it!! 2007-08-26 19:23:20
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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Now that would be interesting. If you're the Chinese, you take a huge bet on a market crash. Of course you can create one. Then you tell the US that they do what you want (which might be any of a number of things) or you're going to dump your dollar reserves. When they dare you to because it will trash your equity in the position, you say "uh, no it won't." They're left trying to figure out HOW you can do that without risk..... and suddenly, the horror of what you've accomplished hits them. That could be very un-funny if you're the US. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2007-08-26 19:25:04
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Prospektor Posts: 2448 Incept: 2007-07-19
Stockholm, Sweden
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Now you got me to put on the tin foil hat, clever little bastards!
---------- Mongo like 2007-08-26 19:31:01
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Victor Posts: 19 Incept: 2007-08-26 brooklyn NY
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i would appreciate feedback on how those mandatory trading halts would factor into all of this. if the market drops immensely and all of a SUDDEN, it will probably be put on ice for at least one or two trading days. if it drops INCREMENTALLY to the low 8000's then that drop would have to commence fairly soon, this week in fact. so how does someone like our mysterious investor deal with these concerns when getting into this?? i would think the worse the news the less likely the market will be allowed to react to it, does this make sense? 2007-08-26 21:47:21
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Zelonewolf Posts: 718 Incept: 2007-07-05
Newport, RI
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The NYSE circuit breakers specifically address this. The 8000's can be achieved with 2 30% circuit breaker days. Remember, the Dow is permitted to go down as much as 30% in a single day! The earliest a 30% circuit breaker can be tripped is 12:30, as follows: 9:30 Dow opens down 10%. 1 hour trading halt 10:30 Dow re-opens, down an additional 10%. 2 hour trading halt 12:30 Dow re-opens, down an additional 10%. Trading halted for the day So, a 40% drop can be achieved by roughly 10:30 am on the second day. Information about the circuit breakers: http://en.wikipedia.org/wiki/Trading_cur.... ---------- Three Laws of Thermodynamics: 1. There's no such thing as a free lunch 2. There's no such thing as a lunch worth what you paid for it 3. Everyone needs to eat lunch Last modified:
2007-08-26 22:13:33 by zelonewolf
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Victor Posts: 19 Incept: 2007-08-26 brooklyn NY
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first, thanks for the quick reply. now, a semi-relevant question: WITHOUT these curbs, do you think the market could "trade" itself into nonexistence? as in, only doomsday stocks holding ground, everything else [market-wise]obliterated? when i used to ask my broker "how low can it go" in connection with one of my ailing stocks, his reply [always made with a sharp giggle] was "ZERO". in terms of this specific "crash bet" we're seeing, the party making the bet seems to be confident that the crash will begin relatively early in the timeline, and that the market itself will not cease trading afterwards [as it ALMOST did the week of september 11th]. it's as much a psychological wager as an options trade. i am assuming that a one week market holiday would cost this guy/this firm a buttload of money, is that a safe assumption?? Last modified:
2007-08-26 22:37:33 by victor
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Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
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Possible? Sure. Likely? No. Even during the Depression, stocks still had some value. Not a lot mind you, but some. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2007-08-26 22:37:37
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