There are some very disturbing things occuring in the market...

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Masterofdamoney_IHB

Masterofdamoney_IHB

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<p>This is from yesterday, sorry if it's already been posted:</p>



<p><strong><em>Anybody have a clue as to what these 'investors' are expecting?</em></strong></p>

<p>The two sales are being referred to by market traders as "bin Laden trades" because only an event on the scale of 9-11 could make these short-sell options valuable.</p>

<p>There are 65,000 contracts @ $750.00 for the SPX 700 calls for open interest. That controls 6.5 million shares at $750 = $4.5 Billion. Not a single trade. But quite a bit of $$ on a contract that is 700 points away from current value. No one would buy that deep "in the money" calls. No reason to. So if they were sold looks like someone betting on massive dislocation. Lots of very strange option activity that I haven't seen before.</p>

<p>The entity or individual offering these sales can only make money if the market drops 30%-50% within the next four weeks. If the market does not drop, the entity or individual involved stands to lose over $1 billion just for engaging in these contracts!</p>

<p>Clearly, someone knows something big is going to happen BEFORE the options expire on Sept. 21.</p>

<p><strong>THEORIES:</strong></p>

<p>The following theories are being discussed widely within the stock and options markets today regarding the enormous and very unusual activity reported above and two stories below. Those theories are:</p>

<p>1) A massive terrorist attack is going to take place before Sept. 21 to tank the markets, OR;</p>

<p>2) China, reeling over losing $10 Billion in bad loans to the sub-prime mortgage collapse presently taking place, is going to dump US currency and tank all of Capitalism with a Communist financial revolution. Either scenario is bad and the clock is ticking. The drop-dead date of these contracts is September 21. Whatever is going to happen MUST take place between now and then or the folks involved in these contracts will lose over $1 billion for having engaged in this activity.</p>

<p>"$1.78 Billion Bet that Stock Markets will crash by third week in September Anonymous Stock Trader Sells 10K Contracts on EVERY S&P/Y "Strike" Shorts Stocks "in the money" effectively selling all his SPY holdings for cash up front without pressuring the market downward.</p>

<p>This is an enormous and dangerous stock option activity. If it goes right, the guy makes about $2 Billion. If he's wrong, his out of pocket costs for buying these options will exceed $700 Million!!! The entity who sold these contracts can only make money if the stock market totally crashes by the third week in September.</p>

<p>Bear in mind that the last time anyone conducted such large and unusual stock option trades (like this one) was in the weeks before the attacks of September 11.</p>

<p>Back then, they bought huge numbers of PUTS on airline stocks in the same airlines whose planes were involved in the September 11 attacks.</p>

<p>Despite knowing who made these trades, the Securities and Exchange Commission NEVER revealed who made the unusual trades and no one was ever publicly identified as being responsible for the trades which made upwards of $50 million when the attacks happened.</p>

<p>The fact that this latest activity by a single entity gambles on a complete collapse of the entire market by the third week in September, seems to indicate someone knows something really huge is in the works and they intend to profit almost $2 Billion within the next four weeks from whatever happens! This is really worrisome."</p>

<p>Source: <a title="http://www.tickerforum.org/cgi-ticker/akcs-www?post=4669" href="http://www.tickerforum.org/cgi-ticker/akcs-www?post=4669">Ticker Forum</a></p>
 
<p>Me thinks some trainee hit the wrong button. Oops banned from wall street for life. </p>

<p>Of course all those call buyers yesterday made out very nicely today.</p>
 
<p>I just looked at Yahoo! finance as well as E*Trade ...</p>

<p>According to Yahoo!, 10k <em>options</em> were traded of the SPY Sept 60, 65, 70, 75, 80, 85, 91, 92, 93, 94, and 95 calls. That's 120k options trades ...</p>

<p>E*trade did not list any volume, but the open interest is oddly listed, for example on the 95 calls, as 10,474 (as if the open interest <em>was </em>474, then 10000 were traded).</p>

<p>I would say it was a glitch, but you look on the put side ...</p>

<p>Sept 90, 95, and 99 puts each had a volume of 100 - 200 options traded (copycat action?) ... not to mention the possibility of massive profit at tiny cost, 5 dollars per option traded!</p>

<p>I guess I don't follow SPY calls that often but I don't know what the average volume for ATM puts are ... the volume was more than 10k for the 138, 140, 142, 143. 145. and 146 puts.</p>

<p> </p>

<p>Time to batten down the hatches??</p>

<p> </p>
 
<p>If this is suspicious to the common man. I am sure it has gotten the govt.'s attention. Wouldn't be hard to figure who it is. If it's not legal they would have brought it to the attention of the public. </p>
 
<p>Here is an explanation on the Ticker Forum message boards:</p>

<p>OK, this from another board. Guy sounds like he knows what he is talking about. Beats me. Smart people here, please let us know if this seems right...





-- begin quote from another board ---





The SPX cash options are traded on the Chicago Board Options Exchange. The open interest for the 700 CALL is 61,730.





The first clue this is not a smart way play a crash is to see that you could buy the 900 PUTS for .05, the cheapest increment. So why synthetically buy the 700 puts, over 20% lower?





The second clue is to look at the 1700 PUTS. The open interest is 61,740.





Also look at the open interest in the 700 puts and 1700 calls.





It is common practice to trade deep (wide strike) "boxes" in the SPX...buying call, selling put, and selling call, buying put...for interest rate reasons.





There is no early exercise in the CBOE SPX and no market risk by doing this. All brokers/clearing firms have an interest spread that applies to their customers. If a firm has sold a lot of option premium in its overall portfolio it is receiving interest at the lower rate on it's positive assessed balance...say about 4.6% now. If a firm has bought a lot of option premium then they will have a negative assessed balance and the clearing firm w/ charge them a higher rate for the money to carry that position...say about 5.6% right now. This is NOT a market risk calculation, that is separate, but a money & banking issue.





So these two firms meet in the middle and price a BOX in the SPX so that the implied interest rate is say... 5.1% and they both come out ahead.





Sorry if this explanation/theory is somewhat less exciting than the one postulated above.





Finally, trading deep in the money options are a proxy for stock. You do not need a crash to make money if you are short a deep option. It moves up and down with the market, no matter the size of the move.





The following statement is simply incorrect: "The entity who sold these contracts can only make money if the stock market totally crashes by the third week in September."





Now if the blogger is attempting to say the initiating BUYER of these calls was trying to hide his/her real intentions and the sold enough S&P futures to make the calls into synthetic 700 puts, then that would be true. But here again, those puts are offered at .05, so if the trades were efficiently put on, .05 x 100 multiplyer x trade quantity would be the $$$ at risk, or about $300k. Again, he could buy the 900 puts for the same price...over 20% higher...would be a dumb play, and not the correct read on the trade as explained above.





-- end quote --





-- start another quote (from the same guy, I think - both were anonymous) --





Just to be clear re: above "Box" trade post. This call trade was part of a spread trade that involved one party buying approximately 60,000 700 calls, selling 60,000 700 puts, buying 60,000 1700 puts and selling 60,000 1700 calls simultaneously.





Traders making this interest rate trade use the widest possible "strikes" to maximize the dollar amount of each trade, so that that can do the least quantity possible to achieve their goal, while minimizing commission expense. The 700 strike is the lowest available in the SPX and the 1700 is the highest...for September 2007 options.





There are 1000 SPX points between the 700 and 1700 strikes. 1000 x $100 multipier x 60,000 = $6 billion, which is in fact a pretty large number. If they traded the 700/1200 "BOX" then they would have to do 2x as many to get the same dollar amount and pay 2x the commissions.





Again, realize that if you buy a 700 call and sell a 700 put your trade is essentially like buying/getting long the stock market. If you offset that by buying the 1700 put and selling the 1700 call, your trade is essentially selling/getting short the market.





This is why this trade gets down to interest rates only. If you sell the deep options (700 call and 1700 put) you recieve a premium credit. If you buy the deep options (again 700 call and 1700 put) you must pay out a debit to purchase them.





The market can go up or down...no effect...because you are long and short the market at the same time. This is purely an interest rate motivated trade. Interest on $6 billion is no small number, but as a stretch, if a trader is trying to play an interest rate change from a market crash by locking in a rate for the next month or so...this is a poor way to do it IMO.





-- end quote -- </p>
 
<p>Where did you all go to school?</p>

<p>I need to start over!</p>
 
<p>In my own understanding you buy deep in the money calls either: i) to speculate with the contracts ii) or to hedge a similar size short position.</p>

<p>i) to speculate with the contracts


deep in the money calls, it's like buying the shares, and you buy them when you are a little optimistic about the future and it's a safer bet that buying deep out of the money calls, that you only buy when you are totally bullish about the future, so I see this as a something positive





ii) to hedge a short position


here the trader is covering his behind in case that his short position goes wrong and he can buy the shares at a fixed price and reduce his loss instead of buying shares to cover his short from the market</p>
 
<p>I think that because it was one trade essentially with the box trade it really doesn't mean much. The box trade makes the most sense. It is very similar to a straddle but with also writing the options. </p>

<p>Today the put volume was higher than the call volume. I was looking at the open interest earlier. The call volume was tight in the range of just out of the money but the puts went deep into the out of the money range. </p>

<p>I wouldn't dig into it too much. Everyone since 9/11 has been trying to find the next trade like it. Until there are more and more wierd trades I won't be readjusting my tinfoil hat.</p>
 
<p>tinfoilhats.com latest customer (Graphrix) sez, <em>"Thank you for your efforts to save our brains. This has been an issue for me for quite some time, always the fear of losing mine, through theft by aliens or whatnot. Now everyone will know that I have an edge on them. I feel good about that." </em></p>

<p><a target="_blank" href="http://www.ericisgreat.com/tinfoilhats/kutcherside.jpg"></p>
 
<p>Don't you know, the tinfoil hats you buy are completely bogus - they are made by the government and conduct the very satellite subliminal messages into your brain! Make your own!!</p>

<p>Nod to awgee - I started investing about 10 years ago and was more or less self taught (is that a good thing?!?!)</p>
 
Fraychielle - How else would you learn to invest your money? I would guess that the main thing a broker learns is how to sell; same with a financial planner.<p>


I truly think the only way to learn how to sell short successfully is to lose money while shorting and learn from your mistakes.
 
I think that it is so true that you need to learn from your mistakes bullish or bearish. So far (knock on wood) my mistakes haven't hurt my profits much.
 
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