Billions in Put Options purchased betting that the market will crash (UPDATE: CALL MADE?)

Originally posted by behindthescenes
We're all assuming these Put options have been made because the betters expect something major to happen that will crash the markets.

Short of a terrorist attack, or UFO invasion (as some have alluded) or even the commencement of bombings on Iran (which is where I feel the most likely scenario may play out), there's one possibility that most of us have overlooked:

What if the Federal Reserve doesn't cut the interest rate on Sept. 18. It's widely known that investors are trading today on the expectation that Bernanke will cut the rate by 50 basis points (so, from 5.25 to 4.75%). But I've long speculated that the Fed is on a tightrope here with this. If it cuts rates, it could further destabilize and devalue the dollar, which can then lead to a currency crash worldwide as countries like China and Russia and Europe and even Saudi Arabia and Iran dump their dollars after losing faith in its long-term value.

That could lead to hyperinflation and a real doomsday scenario for the economy.

I think there's a real chance that the Fed is weighing the possibility of holding rates steady instead of a cut under the belief that the pain in a stock market crash would be less than the pain in a dumping of the U.S. dollar.

Maybe that's what the buyers of these Put options know that we don't....

I tend to agree with you here. That big of a rate cut could lead to $10 dollar milk then we have a doomsday scenario on our hands. So, someone knows they won't cut rates, the talking heads on CNBC are saying the advances we have seen in the market the last 2 weeks are because the market has already priced in a rate cut. So, we don't get the rate cut the market could have a 30% drop as a reaction .

I question the veracity of this data, only because for such a position to be established within the exchange, there has to be someone on the other side of that trade. Also the fact is that an option of that nature is considered so "deep" out of the money that it would take a huge move to the underlying stock market to be able to liquidate with any profits; because in order to sell the position before expiration, someone has to let you out. The only way to guarantee a profit in this case would be to have the market crash all the way down to the option level that was purchased.

I myself being an option dealer would sell that put option till the cows come home!

Originally posted by Antagonist
I question the veracity of this data, only because for such a position to be established within the exchange, there has to be someone on the other side of that trade. Also the fact is that an option of that nature is considered so "deep" out of the money that it would take a huge move to the underlying stock market to be able to liquidate with any profits; because in order to sell the position before expiration, someone has to let you out. The only way to guarantee a profit in this case would be to have the market crash all the way down to the option level that was purchased.

I myself being an option dealer would sell that put option till the cows come home!

No at least the SPY option trades were put in as bear spreads. The calls were sold at the lower strike price and then calls were purchased at a higher strike price for a net credit. To make money on the spread requires a large drop in the S&P 500. Billions of dollars worth of bear spreads were purchased at various strike prices, all assuming that the market collapse will happen in early September. The market makers will take the other side of a position and then seek some other trade to stay market neutral, so there doesn't necessarily have to be both a buyer and a seller in the market per se at the time the trade is made.

More ominous perhaps are the out of money puts being bought on the european and now the Japanese indices. The Japanese options expire Sept. 14 I think.

I think i read somewhere that the Japan puts were "European" options that can only be exercised on the day they expire. If the timing is off by a week such an option would be worthless, and the entire amount paid to buy the option would go up in smoke. Same would apply with the Eurostoxx puts i would think though not necessarily the timing. I think they expire around the same time as the American ones. So one could conclude that foreknowledge of some event that would affect US, Euro, and Japanese markets woul happen before the 14th.

The post over on ticker forums has been pretty muched ruined by people using it to post 9-11 theories. Not the place for it and I don't mind that whoever is modding is throwing those posts in a tinfoil hat topic board.

I'm seriously considering buying my first put tommorrow. Though with what the Fed did to shorts last expiration day, I'm more than a little scared to. My non-IRA account is as much for gamblin' as investing and I'm feeling the itch.

[edit on 28-8-2007 by jefwane]

reply to post by SevenThunders


Well that makes it a different scenerio than simply buying a deep out of the money put. In that case premium is paid, and only that premium amount is at risk while in the bear call spread scenerio there is an unlimited amount of risk (as any short position leaves a trader in).

reply to post by SevenThunders


It would also seem to me that if the market stayed the same for the period of time you sold the call spread for, the you would be able to keep the premium from the credit spread

Originally posted by Antagonist
reply to post by SevenThunders

 

Well that makes it a different scenerio than simply buying a deep out of the money put. In that case premium is paid, and only that premium amount is at risk while in the bear call spread scenerio there is an unlimited amount of risk (as any short position leaves a trader in).

Just selling the 'naked' calls without also buying the calls at the higher strike price would be exposing yourself to unlimited risk. Their risk is actually capped, though still quite substantial, due to market slippage, bid/ask spreads and the erosion of the option premium on the long call. No the disturbing thing here is that in order to make good money on these trades, the buyer of the bear spread would want the market to collapse down to the lower strike price of the option spread. That means they want the s&p 500 to go from 143 to 60 (as represented by the ETF spy value) and they want this to happen prior to Sept. 21, though if they made the Japanese trades as well they want this to happen prior to Sept. 14.

So what are the plausible scenarios that could send the market down in this manner?

Realistic please, as much as I'd love to see an alien invasion, I doubt I'd live to see one...

Originally posted by CAPT PROTON
So what are the plausible scenarios that could send the market down in this manner?

Realistic please,

realization that the sub prime mortgages is contageous,

that all credit is in doubt, 10 of millions of credit card holders will soon
get squeezed for payment instead of using their credit cards as 'ATMs'

every agency, lender, that gave high grades to all these debt instruments
will lose a great deal of stature & credibility in the finamcial community,
it will be transparent that the AA & below rated CDOs & such were overrrated poison, designed & overrated so premium commissions could be raked in

the whole credit & credit rating/risk system will be seen as propriatary and self-serving...and in need of major revamping----likely by newly created,
private equity generated rating houses...
10s of thousands of securities associates in major brokerage houses will get pink slips,
& a rebuilding of trust-risk assessment must be rebuilt in the markets
over the next 3-5 years

all the pre-2007 paper will need to be quaranteened as junk-bond junk @ maybe .10 cents on the dollar.
the market retrenches itself at around the 10,500 level & rebuilds on a firmer, more honest foundational basis.

confidence eventually gets restored
that's one perspective of being realistic, thanks

BTW the 21st of Sept 2007 is 'International Day Of Peace' just if you didn't realise..

and theres a worldwide movement on the 15th of sept to www.earthdance.org...


Get Dancing peeps...

[edit on 29/8/07 by free_spirit_earth]

Just a thought, and resurrecting an old favourite, might the turbulence in the financial markets be due to worries about an imminent NESARA announcement?

As mentioned in other threads here on ATS, NESARA is the covert National Economic Security and Reformation Act. Following initiatives taken by the USA's Supreme Court in the 1990s, NESARA was passed into law by Congress in March 2000. It was one of the last official documents which ex-President Bill Clinton signed before leaving office. He added his signature on the 10th October 2000. The statute has been kept under wraps since 2000, but has been periodically updated. Recent actions by the USA administration have activated the move for its disclosure.

NESARA restores Constitutional Law in America at the moment it is announced. Corrupt USA administration officials are immediately removed. Peace is announced in Iraq and Afghanistan and the military are withdrawn. All credit card and mortgage debt is cancelled as a remedy for USA banking fraud. Similar moves are implemented in more than 100 other countries worldwide.

Following the NESARA announcement, The Federal Reserve Board will be abolished. A new US Treasury Bank System will click into place, with a new U.S. Treasury currency backed by gold. Federal Reserve facilities and most non-senior personnel who do not oppose the change will be absorbed into the new US Treasury Bank System.

Gold is going to be important. There is much more gold in store in covert vaults than is officially stated ....

Etcetera, etcetera ....

Any relevance??

More >>

There is a fuller text at The Alcuin and Flutterby blog here: alcuinbramerton.blogspot.com...

reply to post by SevenThunders


You are right by having a spread there is a limit to the risk involved because you are long a higher call, which would also appreciate in value as the market goes higher. I do think though, in this scenerio, if the market remained unchanged to slightly lower at the time of expiration, then the trade would still be somewhat profitable,because you would be able to keep the premium from being a net seller of calls assuming the options expire worthless.

If I remember correctly and I'm sure I do, on 9/10/01 there was billions of dollars from stocks reported missing. By the time someone was about to question this all of a sudden 9/11/01 happens.

Everyone is too caught up in whats happening and too busy being force fed lies through the media to even remeber 9/10/01. Now I can't even find anything on it online.

Just like all the files in WTC buildings 1, 2 and 7 this info has vanished.

Does anyone else remember this!?

Originally posted by parry noid
If I remember correctly and I'm sure I do, on 9/10/01 there was billions of dollars from stocks reported missing. By the time someone was about to question this all of a sudden 9/11/01 happens.

Everyone is too caught up in whats happening and too busy being force fed lies through the media to even remeber 9/10/01. Now I can't even find anything on it online.

Just like all the files in WTC buildings 1, 2 and 7 this info has vanished.

Does anyone else remember this!?

You know, it would really helpful if claims like the one made in the above post were accompanied by at least some reasonable documentation. Is that too much to ask?

Look, many of us, even those not generally given to conspiracy theories all seem to feel that some type of significant attack is imminent. I would suggest that we take our own responsibilities more seriously and present information that is either from a reasonably reputable source or personal experience/knowledge.

So I just thought about this theory over lunch....

What if "They" know "We" will be watching this thing play out, looking for what is going to happen. Waiting and watching these numbers.

They learned from all their leaky spots in 9/11,so to speak, that the masses aren't that easily fooled as they thought.

So while we are all busy waiting and watching this, hoping for something to unfold, what they are "really" doing is going on behind the scenes.

absolutely no attention diverted to them.

if this is true then we need to have only some people paying attention to this and others looking for further discrepencies.

what do you guys think about that?

As well To my friend who pointed out something about me noting giving any more info on missing money heres what I found.

2.3 Trillion Dollars missing

how do you like them apples!!!!!

Originally posted by parry noid
As well To my friend who pointed out something about me noting giving any more info on missing money heres what I found...
how do you like them apples!!!!!

Thanks for the link. I would have to agree that trillions of our dollars spent without any trail of it's use is beyond troubling. I don't believe it necessarily supports the case that the gov't is evil. I think it is yet another example of how wasteful our Federal gov't is and how little respect they have for those of us who work so hard to earn our money.

The timing is troubling but let me ask you this. IF the money was used to fund the attacks on 9/11 (which I don't believe) do you really believe Rumsfeld would go on a major network the NIGHT BEFORE to declare that the money was not accounted for?

I would think they could have let it slide. After the attacks, it is likely that the topic would have been pushed to the background.

i really dont know why Rumsfeild would of done that, nor do I know the reason for the money missing. Maybe it was used to fund the attack and pay people off, kind of like hush money. The reason I think he came on to talk about it is so they could say they at least told everyone. But the fact that everyone got caught up in the calamity they forgot all about it.

Originally posted by Night Watchman

The timing is troubling but let me ask you this. IF the money was used to fund the attacks on 9/11 (which I don't believe) do you really believe Rumsfeld would go on a major network the NIGHT BEFORE to declare that the money was not accounted for?

I would think they could have let it slide. After the attacks, it is likely that the topic would have been pushed to the background.

Or Rumsfeld was in the dark along with (almost ) everyone else. .......or he was laying an alibi of sorts, and so later, could claim to have been in the dark?

Even scarier, could it be that there is someone or some group within the Pentagon capable of orchestrating the whole thing without the administration's knowledge? It does smack of military planning at a level beyond the group in 'charge'.....

Originally posted by Antagonist
reply to post by SevenThunders

 

You are right by having a spread there is a limit to the risk involved because you are long a higher call, which would also appreciate in value as the market goes higher. I do think though, in this scenerio, if the market remained unchanged to slightly lower at the time of expiration, then the trade would still be somewhat profitable,because you would be able to keep the premium from being a net seller of calls assuming the options expire worthless.

The options world is a zero sum game, meaning for every winner there is a loser. The real winners are the market makers who control the bid/ask spreads. Very few make money on these things, in fact the best way to make money is to sell options (e.g. covered calls).

An option has two price components, the intrinsic value, which for a call is the current stock (or index) price - the strike price. The other price is the time value, which is the premium paid for having the right to buy the stock at the strike price (for a call) or to sell a stock at the strike price (put). The time value tends to disappear for the in the money calls purchased.

Depending on the size of the spread say it was 10 points, the trader received something less than 10 as credit say 7 points. If the stock doesn't drop down to the lower strike price and let's say it stays above the higher strike price (which is what one would expect in a normal world) then the spread value will widen to 10 and the owner will owe 10 after both sides of the trade are settled. That's a 30% loss in 1 month on billions risked, a crazy bet. If it goes below the lower strike price the investor gets to keep his 7 points credited to his account, which will be an insane profit for the money risked (3 points in this example).

Since the investor apparently believes that the market will be cut in half, I can only assume that the investor believes that we are headed for a major calamity. I'm not even sure an attack on Iran would do this, unless we got nuked or something. I suspect he/she believes we will get hit with a major terrorism event. I don't know what else would drive the markets down this much.