TheCorinthian Posted August 30, 2007 Report Share Posted August 30, 2007 Sorry, it is here: In the wake of the crash, markets around the world were put on restricted trading primarily because sorting out the orders that had come in was beyond the computer technology of the time. This also gave the Federal Reserve and other central banks time to pump liquidity into the system to prevent a further downdraft. In banking, liquidity is the ability to meet obligations when they come due without incurring unacceptable losses. Managing liquidity is a daily process requiring bankers to monitor and project cash flows to ensure adequate liquidity is maintained. Maintaining a balance between short-term assets and short-term liabilities is critical. Deposit accounts represent the primary funding (liabilities) in traditional commercial banks, and the loan portfolio represents the primary asset. The investment portfolio represents a smaller portion of assets, and serves as the primary source of liquidity. Investment securities can be liquidated to satisfy deposit withdrawals and increased loan demand. Banks have several additional options for generating liquidity, such as selling loans, borrowing from other banks, borrowing from a Central bank, such as the US Federal Reserve bank, and raising additional capital. In a worst case scenario, depositors may demand their funds when the bank is unable to generate adequate cash without incurring substantial financial losses. In severe cases, this may result in a bank run. Most banks are subject to legally-mandated reserve requirements intended to help banks avoid liquidity crises. http://en.wikipedia.org/wiki/Liquidity Link to comment Share on other sites More sharing options...
junglesoup Posted August 30, 2007 Report Share Posted August 30, 2007 In economics and the markets there are lagging indicators and leading indicators. In the option market The "call" and "put" ratio is a leading indicator of future market direction...however indicators in and of themselves are very unreliable...Yes there probably will be further drops int he market, and alot of volatility in the coming weeks,months. So just because people are betting that the market is going to drop doesnt mean that will happen. Options are a great instrument for hedging positions. I would say that is the reason these puts have been bought up...the reason being that there is so much uncertainty. These guys who have put these puts on may well have long positions that are bigger than the value of their put options...this could well be a hedge to shelter other postions from large loses if the FED dont cut interest rates. Its like insurance. When there is uncertainty, that is when you get people hedging their bets...they do this until the volatility calms down, and a clearer consensus about market direction emerges. AT the minute no consensus in direction is there...however ever so slowly a trend will emerge,when the markets calm, although no one knows when a trend is starting. Nearly impossible to know that. It is possible though that there could be a massive sell off. Thats why I think the markets are so fascinating. They will always surprise you, and cause massive shocks. However I have to laugh at the financial media, and the way they always focus on the losers, and money being lost. The bias is always on the upside. Upside is positive, and downside is negative. However when you see the headline "massive sell off on Wall Street" on bloomberg or whatever, the headline saying "massive buying spree on Wall street" makes just as much sense. Its a zero sum game. For every seller there is a buyer and vice versa. As I said however the media always focus on the losers, and never looks at the winners... Its interesting that if you look at the times when there have been massive sell offs and 20% percent loses in a month, you will also see traders with 20% gains at the same time...these are the real smart guys. The win conservatively,and take small loses when everyone else is winning, and when everyone else is losing big, they clean up bigtime with a home run...and take alot of the money of the table. I ll give two examples... In 2002 during the stockmarket crash, this is the performance of a few traders I admire... Bill Dunn 2002 +54% JW Henry 2002 +45% There are many other also who made a fortune, but no mention of them in the media. If you are interested also check out these two guys performance during the Barings Bank collapse, 9/11, The Asian Crisis, Enron collapse, LTCM hedge fund collapse. Everytime they had massive gains when the general market was taking a beaten... Link to comment Share on other sites More sharing options...
chuckwoww Posted August 30, 2007 Report Share Posted August 30, 2007 You seem to be missing my point. I know about the liquidity infusion. It makes perfect sense. But to me it seems to be at odds with the basic capitalist 'survival of the fittest' credo. I just wondered if it was some kind of new hybrid economics? Link to comment Share on other sites More sharing options...
TheCorinthian Posted August 30, 2007 Report Share Posted August 30, 2007 True! In sophisticated options strategies, there could be plenty of cases where someone is buying/selling huge amounts of S&P options in order to do something like take advantage of an arbitrage in market beta for example. Or perhaps to profit off a discrepancy in options pricing relative to perceived risks in the market. A good example of that would be the recent over reaction to the housing market and subprime markets, which kicked the VIX index up a while ago. This sudden increase in beta (i.e. fear in the market) allows options writers to make more money writing contracts. So when you mix that with a lot of people betting the market will go up, of course it translates into a larger volume (i.e. open interest) in S&P calls. Link to comment Share on other sites More sharing options...
OCgringo Posted August 30, 2007 Report Share Posted August 30, 2007 all these theorys are great until something comes out of left field and hits you in the face , 9-11 being one , but even look at the computer crash / trader mistake in China a month or 2 ago, the markets all around the world took a dive that day , China being hit the hardest , So if we are real paranoid , maybe someone has an "in" that a catastrophe is going to happen that day and is betting the farm I am keeping my money in my pocket...... OC Link to comment Share on other sites More sharing options...
FreeTime Posted August 31, 2007 Report Share Posted August 31, 2007 I saw a similar report elsewhere. Although rumours are very common in the stock market, it appears this particular trade may have gone through: Someone or some company bought 245,000 DJ Eurostoxx 50 Index put option contracts expiring Sept. 21st, according to press coverage. The trade was placed around Aug. 16th, the peak of the recent mini meltdown. The potential loss to the buyer if markets don't decline as per the put, is around 1 billion. It is a big bet, but it may all be above board, as I also read today it was simply a large 'box spread trade.' Google or Wikipedia have descriptions on this. New to me. Also worth noting that historically September has been the worst month for U.S. equity markets. A scarier scenario would be if this large market bet was somehow connected to troubles within a big hedge fund, but this is just speculation. Link to comment Share on other sites More sharing options...
OCgringo Posted August 31, 2007 Report Share Posted August 31, 2007 let me ask.... if you were the one placing this "bet" . would it be in your best interest to leak it out so that everyone knew what you were doing ? Can one player make or break a market ? OC confused as usual Link to comment Share on other sites More sharing options...
FreeTime Posted August 31, 2007 Report Share Posted August 31, 2007 I believe all trades on either side of the market are basically 'out there' as soon as the trade goes through. We may not know who placed the trade, just the trade itself. Players with very deep pockets have changed trading patterns. Not uncommon to see a stock rise smartly after Warren Buffett buys into it. I think the Hunt brothers took silver on a ride, but they eventually got busted for it. Link to comment Share on other sites More sharing options...
robaus Posted August 31, 2007 Report Share Posted August 31, 2007 There's also the prospect of Israel bombing Iran's nuclear facilities some time in the next 12 months, which will force Iran's retaliation in some way. That could cause a bit of havoc. An interesting Dow Jones watch site for chartists is Ed Downs Signalwatch. He always hedges his bets in his commentary, saying if the DJ breaks up through this resistance point, the market will then do such and such; if it breaks down through this support level, the market will then travel to such and such. He doesn't have a crystal ball to say which side it will break to, but he's usually right about the 2nd bit ".. wlll travel to such and such" after the precondition is met. At the moment he's predicting an 800 point breakout soon, because the chart is getting all wound up into a fence sitting triangle.. but which way. Who knows? Signalwatch Link to comment Share on other sites More sharing options...
robaus Posted August 31, 2007 Report Share Posted August 31, 2007 >>let me ask.... if you were the one placing this "bet" . would it be in your best interest to leak it out so that everyone knew what you were doing ? OCgringo, Leaking it is exactly what I'd do. If your bet is big enough or you have enough market cred, then everyone else jumps on the bandwagon and it becomes a self fulfilling prophecy. I subscribe to quite a good Aussie stock market newsletter. Whenever they give out a hot tip, you're well advised to jump on board ASAP to make a quick buck, because all the other sheep jump on board too. Baaaaa-a-a-at I don't always believe it! hehe Link to comment Share on other sites More sharing options...
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