Skip to comments.Was The Market Mayhem A Mistake? Maybe Not.
Posted on 05/07/2010 9:07:54 PM PDT by SmokingJoe
Someone put on a bearish position in the S&P 500 just 10 minutes before the market took a dive Thursday, suggesting the market swoon was less a mistake and more the result of some traders exiting a carry trade, hedging, or outright speculating. In any event, the much discussed "fat fingered" trader might not exist.
What's clear is that once some computers hit triggers to sell, that selling pressure triggered other computers to sell and within minutes the rout was on. It also happened at a time of day when margin calls would have snowballed.
Data from Interactive Brokers shows 48,000 worth of June S&P 500 puts taken out at or minutes before 2:30 Thursday. The stock market dive began at 2:40 and went as far as 998 before recovering to close down 347 points for the day. Some of the trades were clearly erroneous -- a $40 stock dropping to a penny at Nasdaq, for example. The exchanges have agreed to break trades on nearly 300 stocks that traded more than 60% away from their last price during the volatile 20 minutes that caused most of the damage Thursday. That won't help shareholders of Procter & Gamble, whose stock only fell 33% during the window. Assuming those puts were purchased, that trade made someone a lot of money. In fact it looks as though more than a few traders made money Thursday -- or at least didn't lose as much as they might have. The open interest on June S&P puts was more than 200,000, according to Interactive Brokers.
(Excerpt) Read more at blogs.forbes.com ...
I said this from the start. The “fat finger” nonsense had nothing to do with the plunge. The e-mini S&P’s came under assault with massive sell orders as Greece got out of hand, the yen carry-trade unwound violently, the Euro was plunging, and Trichet had nothing new to say. That in turn triggered massive basket selling. And then the computers got out of the way, leaving no bid in the market.
Computers buying and selling to each other at the speed of light. Pre-programmed to do certain things at certain points. WOW! Hi my name is Hal.
What are you doing Dave...Dave...Dave what are you doing
You mean some one did NOT place an order for billions of shares of Proctor Gamble rather than millions? Also have they confirmed the false rumor that the European banks had shut down because of Greece?
If this shows nothing more, it shows that the whole global house of economic cards is just one bad bottle of Tequila away from all our anarchy.
Someone big shorted the market...and cashed in.
“Data from Interactive Brokers shows 48,000 worth of June S&P 500 puts taken out at or minutes before 2:30 Thursday. The stock market dive began at 2:40 and went as far as 998 before recovering to close down 347 points for the day”
And Martha Stewart went to jail for what.....?
Can Someone Explain The HUGE Volume Spike In Accenture An Hour Before It Hit $.01?
Looks like Lymphangitis.
Obama and his merry men are going to use this as a reason why the Finance Bill should be passed. Their reasoning will be, “government in control acting as watchdogs and this type of thing will never happen”. Right./sarcasm off
I know this will sound silly, but wouldn’t it make sense to have basic verifications built into the trading process? You know, little things that prevent you from selling shares you don’t have and buying shares with cash that doesn’t exist?
Markets price assets on a moment-to-moment basis. The efficient market hypothesis is not an immutable law of nature. No one wants to admit the obvious, that for a few minutes no one was willing to buy. Those prices were real.
The implications are ominous. We had better throw the bums out in November and get off the fast track to the United States of Greece.
"I'm sorry, Dave. I can't do that".
If the SP500 went to 1 tomorrow, would you panic, or call the market crazy and go buy all US companies for a song?
I'd do the latter.
My more cynical take is that some party (or multiple ones) had been short the market for a while, was losing his shirt, and had to engage in an act of artificial manipulation to save himself.
I have great confidence that the SEC is unlikely to figure out what actually happened. Employees are too busy watching porn, and even when they are not, they are pretty damn useless.
And that’s why I have a problem with the attempts to unwind those trades.
If we want people to step forward and buy “for a song” when other people are leaping off ledges, doesn’t that sort of require that we not undo their bargain hunting and make their risk and capital deployment a futile risk?
Well and truly said.
That’s only half of it. This was a test run to shake confidence in the market and set up the 401k grab.
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