If not, I will sell at a loss.
Remember that the Interval is 11.5 S&P points.
So that 1 1/2 x Interval = 17.25
Previous Close: 682.5
High = Close + 1 1/2 x Interval or 682.5 + 17.25 = 699.75
Low? = Close - 1 1/2 x Interval or 682.5 - 17.25 = 665.25
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7 comments:
Wil,
665 not 765 in the headline; no need to post this
SS
Thanks, SS.
By hold, do you mean daily closing basis?
Thanks!
Will,
The Qs are pulling back the market -- it seems as if your theory is working. Why not a pair trade - short Qs; long Commodities. Look at the FCX chart.
Will,
I've mentioned a couple of times here that I thought a bottom would be in once "force majeure' was declared canceling all CDSs outstanding. While a radical idea which I have unfortunately ignored at times in my trading, recently someone a bitt better known than myself has made a not entirely dissimilar recommendation:
"Myron Scholes, whose Black-Scholes option pricing model provided the intellectual underpinning for modern derivatives markets, thinks one particular derivatives market—that for credit default swaps—is due for a Red Adair style rescue. Or a Fred Adair style rescue.
Red Adair put out oil well fires by setting off gigantic explosions at the wellhead. "My belief is that the Fred Adair solution is to blow up or burn the OTC market in credit default swaps," Scholes said this morning. What that means, he elaborated, is that regulators should "try to close all contracts at mid-market prices" and then start up the market anew with clearer rules and shorter-duration contracts." (from The Running of The Bull -blog site).
A GM bankruptcy would seriously test the CDS market.
SS
Will,
Some very interesting info from Josh Marshall at TPM-Talking Points Memo on the CDS problem:
How the Rules Were Rigged
03.06.09 -- 12:22PM
By Josh Marshall
I'm sure the knowledgeable people already know this. But it turns out that one of the features of the 2005 Bankruptcy bill was to put derivative counter parties at the front of the line ahead of other creditors in bankruptcy proceedings. Actually, from what I can tell, they don't just go to the head of the line. They got to skip the line entirely. As the Financial Times noted last fall, "the 2005 changes made clear that certain derivatives and financial transactions were exempt from provisions in the bankruptcy code that freeze a failed company's assets until a court decides how to apportion them among creditors." As the article notes, ironically, this provision which Wall Street pushed for and got to protect investment banks actually ended up hastening the collapse of Lehman and Bear Stearns last year.
Down in the article there are also the mentions of the entertainingly named "International Swaps and Derivatives Association", one of the lobbies that helped get the change in place.
Along these lines, TPM Reader GG sent in this last night ...
Respectfully, you guys are totally misunderstanding something crucial in the AIG bailout: Derivatives claims are not stayed in bankruptcy. (Yet another brilliant innovation from the 2005 bankruptcy reform legislation.)
If AIG were to go down, derivatives counterparties would be able to seize cash/collateral while other creditors and claimants would have to stand by and wait. Depending on how aggressive the insurance regulators in the hundreds of jurisdictions AIG operates have been, the subsidiaries might or might not have enough cash to stay afloat. If policyholders at AIG and other insurance companies started to cancel/cash in policies, there would definitely not be enough cash to pay them. Insurers would be forced to liquidate portfolios of equities and bonds into a collapsing market.
In other words, I don't think the fear was so much about the counterparties as about the smoking heap of rubble they would leave in their wake.
Additionally, naming AIG's counterparties without knowing/naming those counterparties' counterparties and clients would be at best useless, and very likely dangerous. Let's say Geithner acknowledges that Big French Bank is a significant AIG counterparty. (Likely, but I have no direct knowledge.) BFB then issues a statement confirming this, but stating it was structuring deals for its clients, who bear all the risk on the deals, and who it can't name due to confidentiality clauses. Since everyone knows BFB specialized in setting up derivatives transactions for state-affiliated banks in Central and Eastern Europe, these already wobbly institutions start to face runs. In some cases this leads to actual riots in the streets, especially since the governments there don't have the reserves to help out. If you're Tim Geithner, do you risk it? Or do you grit your teeth and let a bunch of senators call you a scumbag for a few more hours?
I'd be curious to hear what other knowledgeable readers think about this. But separate from the immediate financial implications related to AIG, it does point us toward the larger political economy point: the self-reinforcing cycle in which financialization leads to vast sums of money concentrated in the hands of paper-jobbers, who then mobilize that money in Washington to rewrite the laws to privilege them for even greater profits.
A final question, I'd be curious to hear from people who work in this space what even the notional rationale would be for having derivative counter parties able to skip the line in a bankruptcy proceeding.
SS
Thanks for sharing SS.
You may end up being right with the 'force majeure' and it would probably be a very bullish thing.
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