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----- Original Message -----
From: Ivan Figueredo <idf@xxxxxxxxxxxxxx>
To: Lawrence Chan <stnahc@xxxxxxxxx>
Sent: Monday, February 14, 2000 5:23 PM
Subject: Re: Trillion Dollar Bet - anyone impressed ?
> Larry,
>
> ----- Original Message -----
> From: Lawrence Chan <stnahc@xxxxxxxxx>
> To: Omega-List <omega-list@xxxxxxxxxx>
> Sent: Monday, February 14, 2000 10:20 AM
> Subject: Re: Trillion Dollar Bet - anyone impressed ?
>
>
> > the whole story was detailed in a book.
> > will find the title and post it.
>
> Invemting Money: The Story of Long-Term Capital Management and the Legends
> Behind It.
> By Nicholas Dunbar
>
> ce, but
> > in HUGE SIZE all the time.
> >
> > so when the mkt start going against them FAST,
> > which is the key problem for option sellers, they cannot do
> > a thing but just watch themself sink.
>
> I am not convinced of this analysis. The LTCM debable occured because of a
> six-sigma event - in anys hort position that you couldn't dynamically
hedge,
> you would be in trouble.
>
>
>
>
> > ... they failed to calculate the option price properly - using chaotic
> > assumption, instead of the stupid B.S. model :)
>
> I suspect that their calculations were fine. Again, Staying "greek
neutral"
> (delta neutral, etc) in an "unexpected" move is nerly impossible.
Remember,
> they made a ton of money for a while, and were wiped out on essentially
one
> move. This is the opposite of your friends story below.
>
> > With chaotic model, you do not sell very very out strikes, because
> > their prices instead of going very cheap, they can go inifinite in
> > many cases :)
> >
> > The moral is to LONG these cheap options at a rediculously cheap
> > price from time to time as lottery tickets .. who knows what will
> > happen :)
>
> This is very interesting, but this implies that LEAPS are way undervalued,
> an assumption that I am not willing to make.
>
> > I do know a friend who use part of his job salary to buy dirty cheap
> > options on OEX (before) and sp future options (now) every month.
> > He is toasted 90% of the time, but his net gain is in the millions mark
:)
> > like last nov, dec, and the jan this year - he made back all the bets
> > he made in the past 2 years plus more.
>
> Very interesting. This gentleman has an iron will to be able to take
losses
> for two years to make one huge gain. This strategy has been implemented on
> the Nikkei, and on Amazon. Some people even use it on Microsoft.
>
> > back to LTCM, as they are a fund, they are forced to perform,
> > thus, lottery type of trading cannot be used as the clients will go mad
> > on them ...
>
> Regards,
>
> Ivan
>
> > -Lawrence Chan
> >
> > ----- Original Message -----
> > From: M. Simms <prosys@xxxxxxxxxxxxxxxx>
> > To: Omega-List <omega-list@xxxxxxxxxx>
> > Sent: Monday, February 14, 2000 9:59 AM
> > Subject: Trillion Dollar Bet - anyone impressed ?
> >
> >
> > > Last week's airing on PBS of the LTCM debacle was interesting in that
> > very,
> > > very little details of the fund's techniques were unveiled. In fact,
it
> > was
> > > kind of stupid when it was mentioned that LTCM dropped $500 million in
> one
> > > day.....yet gave no clue as to how that was actually accomplished. It
> was
> > > probably a trading "record".
> > >
> > > Obviously these guys were leveraged with options and/or futures in
such
> a
> > > way that long and short "bets" were supposed to offset each
> > other......based
> > > on prior relationships.....
> > >
> > > Moral of the story: backtesting alone won't hack it in the long run.
> When
> > > economic or market conditions change drastically, make sure your
system
> > > either adjusts properly or STOPS TRADING.
> > >
> > >
> > >
> >
>
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