E-Minis underestimating Katrina?

Discussion in 'Index Futures' started by smilingsynic, Aug 29, 2005.

  1. I am quite surprised that the ES (e-minis trading on Globex) is down only nine (1197.00), considering the almost certain devastation that is about to hit New Orleans. I am not comfortable taking about trading, esp in light of the fact that people are going to die (trading in that context means so little--I am having trouble getting ready for Monday's 9:30 opening), but I think that this is a gift. ES may hit 1180 by Thursday.


    1. NWS is now predicting 50-99% odds of a direct hit on New Orleans. From what I remember reading some months ago about the city, a category 5 could lead to property damages approx 50 billion (I have seen figures higher--I am trying to be conservative). Death toll is unpredictable, but will probably surprise even those ready for the worst. I think it would be too callous of me (or anyone) to offer off-the-cuff predictions about deaths.

    Am I some scientific expert? No, but I'll say this: since I live right on the coast, I have a interest (personal and financial) in learning as much as I can about hurricanes. I am no expert, but am pretty well read (I don't mean Yahoo! News or Weather Channel!).

    2. Uncertainty over the exact damage will further ratchet up VIX. IV has been so low for so long, and writing options has been such easy money for so long, that one could easily see a rush for the door. Just in time for fall (sigh).

    3. The market is already oversold. Markets tend to accelerate on the downside, esp when something comes out of the blue like this. Same with VIX.

    4. I haven't mentioned oil, because I have nothing to offer here. If oil spikes, the market will be hit even worse, for sure.

    Will bottom feeders who bought late last week hold , buy more, or bail? That is the trading question for the week.

    In other words, the news reports and other sources I have read since Saturday I think severely underestimate the potential destruction. God, I hope I am wrong.


    Short X ES Sept (1197.25)
    Short X ES Sept 1215 straddles
    Short X ES Sept 1210 puts

    Will cover half of ES Sept short at 1185.25, and half at 1180.25. Will cover short 1215 calls at 1180. Will pray for mercy (I know what is like to be in a Category 2--never been so terrified as an adult in my life).
  2. nitro


    I want long so bad. But initiating a position here is gambling imo until the RTH start.

    BTW, without showing what premium you got for the option positions, stating them here is meaningless. Also, your positions don't make sense - When exactly did you go short the options positions since the options markets are not open?

  3. syrre


    Me too, but i have not put on any yet...
  4. just21


    Emini SP options on globex are open nearly 24 hours a day. Some strikes are up 25% since fridays close.
  5. nitro


    Even on Sunday night? I don't think so, and even if they are, there is no liquidity.

    I just checked the Sep 1215 call and the spread is $1.25 with the volume 1 contract ?

  6. Babak


    XLE has softened up a LOT during pre
  7. Are these all equivalent positions w.r.t. size? If so, then you're short "X" 1210 synthetic calls and short "X" 1215 natural straddles. If they're not equivalent in terms of contract-size, then it doesn't state a thing about exposure.
  8. Htrader

    Htrader Guest

    Financial markets tend to shake off one-time events. Any economic damage to the south, even if in the tens of billions is minimal when compared to the overal economy.

    Remember that huge power outage of 2003? It cost billions and the markets actually closed up that day.

    I wouldn't be surprised to see the markets stage a late day rally and close up, especially if we get confirmation that the strategic oil reserve will be released.
  9. Holmes


    San Francisco Earthquake 1906. Before the earthquake the DJ was around 72, initially it went up before the reports of devastation started to come in and realisation started to sink in with Joe Bloggs and his mates Tom, Dick and Harry. It dropped to around 63. (> 10% drop). It recovered largely towards the end of May but then dropped down again.

    We can expect some volatility. :D :D :D

    Read Jessie Livermoore

  10. Htrader

    Htrader Guest

    Guess that rally came sooner than I thought.
    #10     Aug 29, 2005