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This is a mistake that a LOT of would-be traders make; they trade according to theory as opposed to the immediate practical considerations in a given mkt. It's also a variant of the error of the Left; when mkts don't behave according to their (asinine) theory, they invariably try to bend the mkt to their will via regulation and assorted other crapola.

Stu, this is such a money quote it isn't even funny.

It's also one of the mistakes that some real-life and quite excellent bond traders made: John Meriwether, Haghani, Hilibrand, McAtee, et al. You remember them, of course. They were once known as Long-Term Capital Management. They stuck to their theoretical models in the face of a changing practical reality in 1998...and they lost on the order of USD 3.5 billion in 90 days' time from July-Sept 1998.

According, to W Buffett, Meriwether told him that a 6-sigma event couldn't touch them. Oops. ALso, didn't LTCM (at the end) abandon use of a lot of the models and became a spec trader in an attempt to make it back???

Lastly, whatdoya think of that commodity and EUR fall over the past 24 hrs?

Not quite. LTCM ''went directional'' (i.e began speculating outright) in several mkts **before** the crunch really started to hit in late July-early August. And, as the mkt typically tends toward maximum pain, most of these spec trades went against them, too.

Notwithstanding, they plunged on. In fairness, a number of their positions were both large and illiquid, not much could be done about them directly. However, in a curious process of shat might be called ''avoidance avoidance'', LTCM didn't even attempt, afaik, any indirect hedges for interest spreads that were going South on them.

Then, they decided to spec Russia from the long side. Total complete insanity. What could they have been ''thinking''?? Say goodnight, Gracie.

Thanks for the kind word, and good trading to you!

The commodity px and EuroFx drop?

A **much** needed correction, not a direction change. Consider writing short-dated silver and gold puts on a further decline in those mkts. Buy Aussie $/Sell Loonie against it.