it's only a 10% price correction in 1 month and these hedge funds fuck up. back in 2002 the market corrected 25% in 1 month. that is how volatile the markets can be. and it broke the back of market manipulators. markets are volatile as it should be.. the FED has no place in determing the weekly or even monthly games in the market. gov't should.just enforce the rules like market manipulation market collusion etc and margin requirements. instead of manipulating the markets with fake liquidity. you see these funds try to control the market. that shows how they are manipulating these markets to the bone.
A big component of short puts is implied volatility and is the main cause of short option blowups. While he may not have lost much on his delta, the huge blowup in implied volatility coupked with it is what likely caused his forced liquidations as margin calls probably went through the roof. In all my years of trading, EVERY single book blowup I have seen is in short volatility.
ATM vols were printing 10% when the puts were sold. Mar08 were ~16%. You're looking at losing 2-3x your credit in the period in which the spoos traded down >140 handles. ATM vols were printing 20 during the selloff, so imagine where OTM-strikes under the market were trading.
A close friend of mine lost $4mm getting pinned on a CL straddle this year. Add leverage and you can blowout long or short vol.
Oh, I agree it goes both ways, but I don't have any personal stories of books blowing up on long vol, hurt yes, but risks are defined on long vol, and there are no margin calls to force your hand (what I suspect killed Vic yet again)
I don't believe locals pay 100% of their premium on long vol. It's essentially a theta figure + a vol adjustment. IOW, he went debit on long vol. When you sell an option at x, that's all you get. Path-dependence in is a bitch. Apparently clearing firms don't understand that only expiration matters.* *joking
<b>September 18, 2007</b> Stocks Surge on Big Fed Rate Cut The FOMC's super-sized half-point easing Tuesday sparked huge gains in equity indexes. Tuesday the Federal Reserve slashed its target for the Fed funds rate by a surprising half-point, igniting the biggest rally U.S. stock indexes have seen all year...
Really? Try as I may, I'm not detecting any thought here. Just boilerplate obfuscation. If you have any information on this matter, then by all means please share it.