Even in that "juicing" these guys were long the equivalent of 100percent xiv. That's ludicrous. If they were running that kind of risk they should have made at least 100percent last year. Perhaps they were selling tinies in massive notional compared to their equity, which exploded in value as the vix rallied. But not prudent short vol biased trader would do that. I can only explain it as gross negligence.
Mav, You have been around for a long while, but have you seen prices Monday night to Tuesday morning ???? They were absolutely insane. On Friday when we hit lowest 5 point away from Tuesday night, option prices where moon away from what went went on Tuesday night. No one EVER saw anything like this. Think about it, I was able to sell S&P put option expiring in 4 days, 1000 points away from strike at 9 points. This was utter madness.
I'm too young to compare against many points in the past, but what I observed on Monday night looked insane. Some of the puts maturing 2 weeks later that I bought for $2 before the super bowl were worth $80 just 24 hrs later
How do you figure they spend more on marketing than research? What does research constitute? Surely it includes salaries of all the analysts and PMs a fund hires to manage a portfolio for a fund. Salaries and bonuses alone are likely higher than any marketing cost a fund will spend. The marketing all lies in going to events and schmoozing rich guys to give them money.
Yeah. Take the 2500 strike ES put expiring Feb 09 that I was watching. I recalled it went from like $2 on Sunday to $100+ by the time it plunged between monday-tuesday. That's insane. You could sell puts down to 1000 on the S&P and still get decent premium. It was that crazy.
This was madness indeed. That is why LJM with all their experience could do nothing. Up until that night it was basically impossible. And s@p move in points was not that bad as we saw on Friday. About the same low, but options were priced normally and sagnificay less than Monday to Tuesday.
I believe that Monday night's option prices were very similar to the sunday night in August 2015. Granted, that period of time was a lot of back and forth (up/down) in the weeks/months prior. This mini-collapse happened after more than a year of literally a handful of modest down days prior to it.
Take a look at Apr 7-14, 2000. I remember trading at that time and it was very similar to the past week, a complete reversal of a spike up parabola. Options markets were way better in those days, there was more liquidity and spreads were not a mile wide. But that was also a 10-12% decline in a matter of days. There were also some truly insane days in the summer/fall 1998, the collapse after 9/11, a mini crash in the fall of 1997, plenty of examples. The main difference being that traders in that era were not nearly as complacent as they have become with the past 9 years of quant easing and volatility compression.