I have this dream...

Like some people (such as 5yr) mentioned, this simply could not happen with derivatives of equities. This could be possible with less liquid (and more abstract) assets, such as CDS :cool:
 
Quote from 5yrtrader:

It was a good story, but you made it seem like EVERYONE in the market was short. Who was doing the buying? A 200 point move in the spoos would be big, but it would be much more likely to move down that much, not up. (thats just how markets behave) What you described basically happened in 1987 just the other direction. If something like what you desribed happened most people would be elated, not bankrupt. The general public is long stocks, and a large move like this would be seen as having a huge wealth creation effect, no one would be worried about the traders that happened to be short.

Also keep in mind that for this to happen it would have to move the cash index as well, your talking about a 15% move up in a matter of minutes. This is just a guess but I think that would take about $500 billion of buying power, I don't believe someone would have to get in stocks that quickly. Stock markets take long periods to climb higher, bur can fall quickly. Look at a graph of the dow in the 20s-30s, and reverse it so that the crash looks like a huge run-up and the bull market looks like a long decline. It just doesn't look right.
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In my dream the markets go up. I can't help that. It does help me sidestep limit rules, though.

I think that, based on the scenario presented, almost no speculators would be left long (except whoever is moving the markets big time), and there would be tons of shorts.

The general public would no doubt be elated. The headlines would be jubilant. But would the futures industry be wiped out?

Who was doing the buying? Someone with big money. Not that big though. It's true you'd have to move the cash market as well. But could the surprise of the futures moving that quickly and that strong start the cash going? Once the futures are up 20 and 30 and more points, I have to think the funds start 'panic buying', realizing that if they don't get on the boat now, they're going to be fryed. There are so many funds that track the indices etc. that have substantial cash on the sidelines. How long can they sit back and watch the markets take off without jumping on--and not risk losing their jobs or their investors?

Once the chain reaction is set in motion, with the markets up 60, 80, 120 points and more in less than an hour, what stops the buyers from jumping on the bandwagon.

I know this is not the usual scenario. We are used to thinking of meltdown, not meltup. The surprise factor is part of what makes it so scary, and plausible.
 
Quote from ig0r:

Like some people (such as 5yr) mentioned, this simply could not happen with derivatives of equities. This could be possible with less liquid (and more abstract) assets, such as CDS :cool:
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Why not? Why couldn't panic buying--fear of missing the boat, with everyone and his uncle calling up their broker, "I better be in on this one..." set in, driving up the equities?
 
Quote from Hofferino:

Why not? Why couldn't panic buying--fear of missing the boat, with everyone and his uncle calling up their broker, "I better be in on this one..." set in, driving up the equities?
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Everyone and they're broker don't move markets. Big bucks move markets, pension funds, mutual funds, the big hedgies, foreign banks, etc. As soon as futures start to spike, arbs would start snatching up equities. When equities spike, sellers come out in full force - you have to remember that big institutions have huge inventories of stock which they would love to dump in a rally like this. Supply and demand.
 
Quote from ig0r:

Everyone and they're broker don't move markets. Big bucks move markets, pension funds, mutual funds, the big hedgies, foreign banks, etc. As soon as futures start to spike, arbs would start snatching up equities. When equities spike, sellers come out in full force - you have to remember that big institutions have huge inventories of stock which they would love to dump in a rally like this. Supply and demand.
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UH--- were any of you guys alive in the late 1990s?? Or did you just enter the market POST-BUBBLE!

Ice
:cool:
 
Quote from Hofferino:

(I am fleshing out the details.)


Suddenly, the big numbers disappear. It seems as if the market is going to drop like wild. Prices start jumping 5 and 10 points per tick. At one point, price ticks down almost 40 points from its highs.
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The CME has a mechanism to prevent cascading stops from completely clearing the order book. In such an event, trading would be suspended for a period of time until the bid/ask depth fills up.
 
Quote from Hofferino:


Who was doing the buying? Someone with big money. Not that big though. It's true you'd have to move the cash market as well. But could the surprise of the futures moving that quickly and that strong start the cash going? Once the futures are up 20 and 30 and more points, I have to think the funds start 'panic buying', realizing that if they don't get on the boat now, they're going to be fryed. There are so many funds that track the indices etc. that have substantial cash on the sidelines. How long can they sit back and watch the markets take off without jumping on--and not risk losing their jobs or their investors?
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Funds that track the indexes would not need to start buying as they are already fully invested in the market, they don't hold cash by definition, they are index funds.

Mutual funds and other long only funds may add to their positions but in no way would this be panic buying. Also they are for the most part long term so this one day jump would not cause them to rush to the market, they would probably evaluate the situatution and if they believe the rally has legs would starting buying in the coming days.

If you have a position on and it starts going massively in your favor are you in that big of a hurry to add more? Most people are not, they prefer to just add up how much they have made.

Here is a story: average joe, who has a college fund for little AJ is walking down the street for lunch and sees that the market is up 200pts, he stares is disbelief and calls his broker to confirm. The broker confirms that indeed the market is up 200pts, Joe's first response is not "BUY EVERYTHING YOU CAN" but; "Wow, how much am I up?"
The other side of the coin is; he sees the market is down 200pts, thinks little AJ's college fund is being wiped out and calls his broker to sell everything in hopes to keep what he has left.

The panic comes when players are getting hurt, when there is "blood in the streets." The S&P futures follow the cash where all the money is. Cash equities markets are dominated by long only players (Mutual Funds, investors, and the companies the equities represent) there is no blood or panic or fear if the market goes up.

Futures could not lead the cash markets up as the arb programs would see the cash/future spread widen and arb it back to fair value. (There is a very simple way to calculate this, check CME website) Or even be short futures and long cash and hold until expiration, it would be a lay-up trade if futures got even 5pts ahead of fairvalue.

People don't look at google and say I have to get in now before it goes higher, they know that the risk is on the downside, there is no risk from missing a big move up in google. So it goes with the stock market.

Even in the "bubble years," the market made large moves up, but never made 20% in a day, like it lost in 1987. I thought it was common knowledge that equity markets go down a lot faster than they go up. No matter how big a short term rally one can always find a fall of greater proportion.

5yr
 
Quote from Hofferino:



... what can traders, who depend on their trading to earn a living, do to protect themselves?
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if you are trading intraday solely - just keep away from such situations. those scenarios you described are simply results of massive greed. so if you are in the market and such a thing starts - get out quickly. if you are not in just relax and watch and do not even think about jumping in.
 
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