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To: "TradersList" <traders@xxxxxxxxxxxx>
Subject: TRADERS: SnP & NDX
From: "Gitanshu Buch" <OnWingsofEagles@xxxxxxxxxxxxx>
Date: Thu, 8 Oct 1998 11:42:25 -0400
Reply-To: traders@xxxxxxxxxxxx
Sender: owner-traders@xxxxxxxxxxxx
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<DIV><FONT color=#000000 size=2>Hello everybody</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>SnP: see chart for trading comment.</FONT></DIV>
<DIV><FONT color=#000000 size=2>NDX: Alan and others commented a few days ago
that the wave pattern for SnP and NDX was the same as of that time. Given the
major divergence between these 2 indices yesterday and today, what does the
E-wave portend for both now?</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>I'm sharing my current observations below for
those new to the index options world:</FONT></DIV>
<DIV> </DIV>
<DIV><FONT color=#000000 size=2>I continue to find better risk/rewards in
trading SPZ8 compared to OEX Puts for shorts. Almost every 24 hour cycle this
week we've managed to get 30+ handle moves in one direction at a time on SPZ8.
OEX puts move matching values only if daytraded in and out.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV>This is one extended period of time where I find options not providing
equal reward for equal risk.</DIV>
<DIV> </DIV>
<DIV>The only answers I can think of are</DIV>
<DIV> </DIV>
<DIV>a/ relatively high VIX levels - I'm gonna try to explain this by using the
example of a car trying to go uphill:</DIV>
<DIV> </DIV>
<DIV>The engine (OEX puts) is already on turbocharger (inflated OEX Puts premium
due to inflated fear) on an uphill slope, but the engine is overheated so the
incremental velocity (change or increase in put premiums) generated by pushing
the gas pedal (momentum spike) in the correct direction is very small.</DIV>
<DIV> </DIV>
<DIV>b/ lack of an overnight market in OEX options.</DIV>
<DIV> </DIV>
<DIV><FONT color=#000000 size=2>c/ all momentum spikes (up or down) ending
within the first 30-40 minutes of NYSE opening. </FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>OEX puts and calls open for trading in Chicago
after about 80% of the stocks in the index open for trading on NYSE.
</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>Thus, if you want to close your short-the-market
position at the open, you really leave yourself at the mercy of the CBOE floor -
they can really buy low from you and sell high to somebody else, with your order
becoming the opening print or "not held" print in a fast
market.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>By the time the order imbalances are overcome on
those 80% index component stocks on the NYSE/Nasdaq, SPZ8 has reversed, pushing
the Premium in the SPZ8/SPX cash up to Program Buying levels. </FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>This puts a floor on the OEX index, and the
panicked public which bought puts on Market orders at the open panic and bail
out when the much anticipated crash does not materialize.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV>OEX options do NOT trade off of OEX index. They trade off of SnP futures.
Futures = round the clock market. Options = 9:30-4:15 market. </DIV>
<DIV> </DIV>
<DIV>Therefore, if you intend to trade OEX options, go into the battlefield
knowing that the other side has an inbuilt edge.</DIV>
<DIV> </DIV>
<DIV><FONT color=#000000 size=2>Best way of survival is daytrading in and out,
or taking advantage of the initial panic/greed spike.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT color=#000000 size=2>Or buy/short futures.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV><FONT color=#000000 size=2>Gotta go - Mr. Acampora just went ultra-bearish
together with Ms. Cohen. Wow - 2 big names in a day throwing in the towel:)
</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV>The bottom must be near, at least in Time terms :)</DIV>
<DIV> </DIV>
<DIV>Regards</DIV>
<DIV>Gitanshu</DIV>
<DIV> </DIV>
<DIV> </DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
<DIV> </DIV>
<DIV><FONT color=#000000 size=2></FONT> </DIV>
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