It looks like you're using an Ad Blocker.
Please white-list or disable AboveTopSecret.com in your ad-blocking tool.
Some features of ATS will be disabled while you continue to use an ad-blocker.
The Index Rises – At expiration, the puts have no value. However, in exchange for the cost of the puts (an insurance expense to the portfolio), the fund manager achieved the goal of establishing a hedge for a portion of the portfolio and did not incur the expenses of converting that portion of the assets to cash. Also, note that the portfolio retains any dividends associated with holding the assets. Given the assumption of a correlation between the portfolio and the index, the value of the portfolio increases.
The Index Falls – If the puts are at-the-money or in-the-money, an increase in the value of the puts may approximate the loss in the portfolio’s value. Tracking error will undoubtedly have an effect on the actual losses in portfolio value if the composition of the portfolio does not match the composition of the index. However, the protective puts limit the portfolio’s downside, the portfolio retains any dividends associated with holding the assets. If the index falls but the puts remain out-of-the-money, the cost of the puts is an insurance expense to the portfolio.
The Index Remains Stable – The puts have little or no value at expiration, resulting in a loss of the premium, which can be considered an insurance expense to the portfolio. This expense is, at least partially, offset by any dividends associated with holding the assets. The value of the portfolio remains approximately the same.
same source: option basics....
An option is a contract which gives the buyer the right, but not the obligation, to buy or sell a stock (or other security) for a specified price on or before a specific date. There are two types of options, a call (giving the right to buy the security), and a put (giving the right to sell the security).
While this might be a sound knee-jerk response from "Tin Foil Hat Brigade," I'm not so sure... these trades are very traceable.
While the Fed’s move helped many investors last Friday, it slammed a handful who’d wagered that the market would continue to decline. It was especially painful to those who had purchased certain monthly “put” options tied to the Standard & Poor’s 500-stock index, which are contracts that pay off if the index declines below a certain level. Those options expired almost immediately after the opening bell Friday.
How the Friday “Bernanke Put” Slammed Holders of “Put Options” Betting on a Market Fall
Since roughly 110,000 of those contracts were still open at the start of trading Friday, that represents a theoretical loss of about $800 million for that single contract.
Daily Options Report
by Adam Warner
Monday, August 20, 2007
The Bernanke Short Options Squeeze
Big Ben literally found the perfect minute to cause the most pain to options sellers.
Originally posted by ClintK
that it is most likely a large hedge fund hedging against deepening losses.
Indeed, this move to exempt Citigroup casts a whole new light on the discount window borrowing that was revealed earlier this week. At the time, the gloss put on the discount window advances was that they were orderly and almost symbolic in nature. But if that were the case, why the need to use these exemptions to rush the funds to the brokerages?
Originally posted by Sri Oracle
... I am just gathering sources at this location until I can filter... hope you do not mind reading along with me.
There is something here though... the fed dropping interest rates on friday had an undeniable impact on s&p puts for august and seems to have spawned completely irrational puts for september.
It could be a big, extensively-exposed hedge fund looking to force the market down just by the extreme nature of the bet. The market is currently so driven by fear and uncertainty, that it'll probably work. It's an old day-trader tactic on a massive scale.
Originally posted by djohnsto77
The only way this trade would lose money is if the stock market goes up. Any move down would be profit, doesn't need to be a crash.
Originally posted by Yarcofin
Terrorist attacks will not ruin the stock market, it will drive the price for gold, oil, defense stocks, etc. through the roof.
Originally posted by XR500Final
US Troops are Deploying to Washington
No it not a joke or made up read about it yourself...