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Dan - a really
timely statement...
look at poor
Victor Niederhoffer.....and his bankrupcty from that one-day incredible down
move in the S&P 500 market in '97....with his at-the-money short
puts....near expiration no less.....
then he got
burn't again on THE SAME short positions in index puts just
recently.
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Sheesh...let's
just admit it: derivatives are only dangerous when bad things happen....but most
important: who can predict WHEN that will occur ? Historic events move
markets....and these can be unpredictable !
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So apply your
MBA-like Bayesian probability theorums and you end up with : MAYBE.
Maybe derivatives
are dangerous.
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<FONT face=Tahoma
size=2>-----Original Message-----From: Dan Goncharoff
[mailto:TheGonch@xxxxxxxxxxx]Sent: Friday, May 23, 2003 8:29
AMTo: realtraders@xxxxxxxxxxxxxxxSubject: Re: [RT] spx
dailyMy take on Buffett and derivatives is that his main
point is that there are many financial institutions and corporations that have
taken positions in derivatives without truly understanding the various risks
that derivatives create, specially in times when market liquidity goes
haywire. Perhaps no major company will suffer an expected loss, but he
suspects one or more will, and that this possibility has not been adequately
provided for in market thinking.I believe many of the derivative
henny-pennies have been exaggerating the 'problem' of derivatives -- the gold
bugs and JPMorgan come to mind, but my own past experience working in the
accounting and risk analysis areas of a major investment bank makes me think
that Buffett has a point -- some banks have put themselves in a position they
could not manage if past market illiquidities occur again. The practice of
risk management has employed adaptive analytical techniques that effectively
assume that what has happened in the past few weeks or months is a much, much
better indicator of the future than events that happened years
ago.Those who forget the past are destined to repeat
it.RegardsDanGKent Rollins wrote:
With respect to the "derivatives bubble", prove
to me that there is one. This is the first I've heard about it.
Lately, Warren Buffet has been saying a lot of stuff with
which I don't agree.
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