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Wait, don't be too hasty to dismiss conspiracy theories on the introduction
of new products. Once upon a reality back when NDX options were first
given birth I traded them from a little 'ol Apple Mac Plus and IIfx in my
kitchen with TrendSetter ProAnalyst and Signal realtime. The first six
months were very profitable for me. It was too easy and I asked myself
what I had been doing trading biotechs and gold stocks when the action was
in options. Little did I know a "market" was being created and I was
helping them do it. After the grandopening had passed it became very
difficult to make money in NDX options and I stopped trading them and
switched to the OEX. My methodologies had not changed other than to focus
more on options than stocks. With new interest in options I went to a Ben
and Jerry's Options seminar in Las Vegas to learn from former and current
floor traders, including Ron Bruder, a designated primary market maker(not
in NDX). Besides learning the basic strategies it was an opportunity to
ask some pointed questions about what had happened to the NDX market during
and after that honeymoon period. I was curious as hell to know what
happened that I was oblivious to. I wanted to know what tools they have on
their end of things besides little pieces of paper and waving hands as CNBC
would have you believe. This is the kind of information that the Doctor
does not teach in his seminars. My question to Ron during a break, I did
not expect a candidly complete answer in public forum, was on the validity
of my perceptions about the ease of success for retail traders to make
money in NDX in that initial period. I could sense a coolness overcome his
demeaner. He knew what I wanted to know. He knew I wanted "inside"
information that only those on the other end of my computer cable knew. It
was no secret at that end, its just that the reality of the store does not
get picked up in TradeStation or anyother homebased trading room. Now Ron
got his start as a card counter with a photographic memory and worked the
casinos in Las Vegas until he was banned from playing. He and his
programmer brother went to Chicago and set up business. At the time of the
seminar he had six pentium computers and six very dedicated operators
running his brothers propriatary software. I began to feel I was up
against some pretty powerful odds and knew that if I as an options novice
was able to make money in NDX during that honeymoon period I was being led
down the aisle. Now Ron was not a market maker in the NDX but was aware of
everything that went on around him. I persisted in my questioning. He
held to the unwritten club rules and only went so far as to acknowledge
that, yes, something had changed after a viable sustainable market had been
created. I never really got a satisfactory answer other than to have my
suspicions confirmed. I later surmised that the bid ask spreads widdened,
volatility changed due to changes in participation,i.e. liquidity, the
hedge mechanism changed. Unless I am mistaken, initially the snp futures
were used, then the Russell 2000 and finally the ND futures. The issues of
premium stripping never come up in seminars or textbooks, nor do the
equations pick up the timing. Someone at the seminar admitted that there
was some difficulty in pricing the NDX options initially and a certain
degree of aggression or lack of is practiced during the honeymoon. It
keeps the marriage together. I guess that what may appear to be conspiracy
is common business practice and very knowable if you address the right
questions to the right people willing to talk.
BobR
At 02:29 PM 10/9/97 -0500, Eric wrote:
>THE DOCTOR wrote:
>>
>> It's simple....I'd get the facts.
>>
>> All you have to do is look at the time and sales and look at where the
>> volume occurs...what strikes and what expirations and "Ray Charles"
>> could figure it out.
>>
>> There is always an amazing amount of "conspiracy" theory about the
>> markets....In my experience over 9 out of 10 times things of this nature
>> are pretty easy to explain.
>>
>> Generally people don't research their facts(all you had to do was go to
>> the website and get time and sales)they simply repeat some assumed
>> "conspiracy" theory..as you did.....draw a conclusion not based on facts
>> and broadcast it as common practice.
>>
>> Regrettably, in my experience, some of the worst sources of trading
>> information are former floor people.
>>
>> At CBOE we have a new member class which accompanies a qualification
>> test prior to going to or returning to the trading floor. An amazing
>> stat. is that the highest fail rate for the test is among former flor
>> people who look to return and "don't need" to review the materials.
>>
>> In my experience probably the greatest source of misinformation about
>> derivatives is the stuff "broadcast" by former floor people. I have
>> never met a former....NEVER.....a former floor person who has told the
>> whole truth about why they left trading. I do more derivative education
>> and travel than anyone else alive....200 seminars a year. I WAS a
>> former charter member of the IMM(do you believe what has happened to CME
>> seat prices?)and I am yet to meet anyone who has represented the
>> truth..whole truth..and nothing but the truth about their former floor
>> knowledge, experience and success or failure.
>>
>> Good luck
>
>
>Boy, is this really worth your time. You are really continuing to
>overreact here. You berate me in a personal e-mail and now you do it
>some more on the RT. Wow... all for giving my opinion. But then it
>sounds as if you are an ex floor person and are not to be trusted :)
>
>I don't know where the conspiracy theory reference comes from, but time
>and sales really tell you nothing about who traded and why, which was
>the original point. Are you saying that the new heavily promoted
>product pits don't dwindle in population and volume immediately after
>launch? The fact that they do is not necessarily a bad reflection on
>the product or the exchange, it is just reality.
>
>By the way, I never characterized why I left the floor (I said a very
>small reason was the fact that you find yourself breaking rules to
>compete for volume) and I have not held myself out as an expert. So I
>don't know why you are going off on me. I simply stated my experience.
>I and others have done this exact thing in new pits at the Board and
>have seen it a dozen times. If you believe I am lying, so be it, but I
>have no agenda here. Do you?
>
>By the way, anyone who had "done their research" would know why CME
>seats have plummeted. As you know, in 1994, there was talk of a one
>time dividend of the CME's reserve ($100M) going to the members.
>Traders being traders, they bought the rumor.... and then it didn't
>happen. Of course other factors were involved also.
>
>Hopefully this can end this unproductive thread.
>
>Eric
>
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