Thursday, March 1, 2007

Midday Rebound

Gotta love this volatility. I'm standing pat on my VIX calls and a variety of other put plays going out to August (Aug because I had to escape crazy nearer month volatilaties). The remaining VIX calls I have are at the expense of the house's money after the ones I sold on Tuesday had mostly quintupled and in a few rose by nearly 7 fold. In other words, I can afford to wait and see what happens in these extraordinary market conditions. Remember, this is 2007. There are a lot of newbies out there and I'm not talking on the message boards, or blogs - I'm talking newbies running money at hedge funds who aren't used to things like bear-0-ramas and corrections. This morning's spike in the VIX again is telling me that some guys and perhaps gals with lots of money - maybe too much - are in over their heads with too much leverage. There's a certain growing element of contagion that I'm going to stick around and watch with morbid amusement while hopefully further profiting. Quite frankly, this type of gyrating stuff is the thing that real black Fridays or Mondays are made of.

6 comments:

nathan said...

any idea why silver just fell through the floor?

Jim K said...

asset classes across the board are going to be very volatile as funds grapple with volatility and leverage problems. I am still holding a long GLD and SLV positions.. but out of futures for now. will consider a short on gold futures if the price can get below $660.

Bill Luby said...

How long before we hear about the hedge funds that melted down this week -- and the banks that will be left out to dry as a result?

Maybe J.P. Morgan can get buy some of those positions for pennies on the dollar again...

Jim K said...

this morning was just a bit too strange. Amarananth was in a class almost by itself last year because of specialization in nat gas (which is a favorite of mine to traude though I don't do spreads). But in the hedge fund world and stock and index trading.. .leverage is common place. That's where stability comes into question since so these guys will ride things down until the clearing firm pulls the plug.

Bill Luby said...

So...we have more liquidity (which was supposed to explain lower volatility, at least last week)...more leveraged ETF plays (with those ETFs connected instantaneously to almost everything)...more hedge funds trying to pull big performance numbers to attract more money in a crowded field...and we shouldn't expect some more fallout?

I'm thinking that the liquidity, leverage and ETFs (perhaps the increased hedge fund money) should make things more volatile in the event there is a bump or two in the road.

I'm not a conspiracy theorist -- though I sometimes play one in the blogosphere -- but I can't believe there won't be a ripple effect in some of the financial firms. For starters, who was on the wrong side of those April 11 puts and March 15 through 20 calls?

Just thinking out loud...

Jim K said...

Bill, it's interesting that on March 18 VIX calls the open interest remains at about 21k. A few weeks back there was a single large buyer of about 18,000 of them. they seems to hanging in there. November 25 VIX call OI is holding above 60K as well.