I'm sure this is old new to many, but didn't see any threads... http://bigpicture.typepad.com/comments/2007/08/mystery-solved-.html Mystery Solved: Another Fat Thumbed Trader Thursday, August 02, 2007 | 10:48 AM in Markets | Trading Last night, I wondered if yesterday was an example of a SPUs gunner doing a late afternoon jamjab on S&P futures. Turns out that 200 point swing was the reversing of a bulge-bracket firm trading error. The following is from a top 5 firm (rhymes with Sheryl), who plainly explains the source of the error, and how its unwind caused the reversal. "Error at the bell last night (clarification): This error at the bell last night really did contribute to the rally. Bottom line is that one of our competitors inadvertently sold 5346 too many of the SPX Sep 1450 calls and needed to cover them in a hurry. At the time the mkt was down 1% on the day. In covering, it is likely the crowd front ran the order, exaggerating the move. Once the move got going, the variance hedging phenomenon kicked in. Most dealers place MOC (Mark on Close) orders to hedge their daily delta risk. If this theory holds, then they would have put in large sell orders yesterday MOC at around 3:40PM. Once the mkt started to run, their delta position would've changed from net long to net short and they would have needed to buy that much more SPX exposure into the bell. Our index trading desk predicts that for every 2 pt move up in the SPU, dealers needed to buy approx 500MM notional in delta. With liquidity being lousy right now, that created the violent move." That makes some sense to me . . .
Except for probably 6 individuals who post ( or have posted ) on ET, there is absolutely no one else on this board for whom this information would be worthwhile. You don't trade enough size to move the markets, so who cares what caused it? If you think you know the reason, it most probably isn't the correct information anyway.
This is kind of funny as CNBC talked about "fat fingered" traders this morning as if they had discovered fire. I had to sacrifice quote a few chickens to get that rally end of day!!
Wow... chill out dude. I just thought it was interesting... and no, i'm not trying to justify my position. Good trading-
Must admit I thought the move was weird. Heard the fat finger theory on Bloomberg. It its important because it means that this market is not as strong as it appears.
The same type of thing supposedly happened on several of the biggest down days this year, including the biggest on Feb. 27. I remember that day, and the drop in the last hour or so was more intense than yesterday's reversal. Of course, permabears say the big downside moves result from rational traders sizing up fundamentals and accurately assessing subprime risks. When similar moves happen to the upside, it's either fat fingers, the PPT, or a bunch of senseless euphoric bulls.
An interesting post, thanks for the info. What exactly is meant by "In covering, it is likely the crowd front ran the order, exaggerating the move"? I interpret that to mean that it became common knowledge that this position had to be covered so pit traders and others with that knowledge bought in anticipation of the rally. Correct? If so how did that situation become common knowledge? At the same time it could be a silly rumour spread by putz wanting to get out of bad positions so we shouldn't read too much into it.
Somehow I find all these reports of erroneous trades complete bullshit. With that much money at stake it's nearly impossible for me to believe such a fantastic story. opm8