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I Just wanted to pass the idea from a derivatives point of view about the
S&P 500 market.
dion-y@xxxxxxxxxx
Hedge funds bot tons of out of money SP 500 Put as insurance last year and
have been rolling then since.
It is very hard to know what is exactly the amount, but was told is huge.
Here is the catch. When they Bot, Derivatives desk at Banks were the seller
of
those puts.
At the time the average Delta was .20 to .25, and those same puts now,
depending on
the average strike 900-950 are around .90 or 90%.
So There is a big selling pressure from the Big derivatives desk
institutions to force the
market down, since the further the market drops, the higher is the delta of
the puts,
so more futures contracts the desks have to sell to become delta-gamma
neutral for
protecting their puts sold to the hedge funds.
I was told the next expiration will be key because if they roll those put at
15-20 bellow
the prevailing price at expiration, the delta will significantly be reduced,
so there will be less pressure to the downside.
The desks are working with an estimate of 750 to 850 to a range for the SP
500 in case the hedge funds instead of only roll at a lower price, just try
to buy more puts.
This is my 2 cents of what I thing is going on from a derivative point of
view.
All the Best
Eduardo J Motta
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