When market falls, a cheap and efficient way to hedge is to take positions in the futures and options markets. The idea is to be positioned in such a way that these trades gain value if or when the value of the asset your hedging falls. Funds are short futures and long volatility at record levels. Typically markets do not crash when everyone is protected. Here's a longterm look at short positioning in S&P 500 futures: Here's a look at long positioning in volatility derivatives: When investors are protected like this, they're less likely to be in a position where they'll panic or be forced to liquidate their investments, which exacerbates sell-offs and causes crashes. The downside, of course, is that the upside — should stock prices rise — is offset by losses in the hedges. But that's the cost of peace of mind.
Hey.. wasn't all of this taken from this article? http://www.businessinsider.my/funds...evels-crash-hedge-2015-9/#bkPGGp2uVglwLS2P.97 I would understand if you didn't give the source and posted it in the news section, then we could all theorize that you read it somewhere, but posting it here in the analysis section makes this look like its your work!
You got me red-handed . Just didn't want to post a link, decided to make this piece to look like a post.
Yes, I read something similar last week...It's another curveball in this market and also a reason why each boom/bust cycle is different than the last...the speed of these markets along with the short term nature of alot of hedge funds can turn things very fast (hence so many v bottoms, illiquid overnight moves, etc)...it made/makes sense the drift up into this Fed meeting...
Tisk tisk... now I will never be able to trust your live calls in the future! The reason it jumped out at me is because I remember reading that headline yesterday somewhere, so I knew to go looking for it now to see if what you posted was actually that article.... and it was! Great article though....
That simply isn't true. Markets did crash in 2008, even when everyone wanted to buy protection. Yes, it's true that traders are heavily long volatility, but perhaps the market will continue to decline.
Man, plagerism sucks and should not be supported. Why not post some original thoughts or at the very least give credit. Mods, rather than "liking" that post, it should be removed. surf
I've got about 3400 as the low for the NQ in 2014 (reached in April 2014)... Wouldn't even a revisit to that level be quite the crash even if we don't break it?