Oct 19. 25 year anniversary of 1987 Black Monday Crash

–Twenty-five year anniversary of the 1987 Black Monday crash and there was an echo of sorts in GOOG, which dropped 10% during the day on a mistimed earnings release. In fact several tech stocks have shown notable weakness, IBM was 211 three days ago and closed 195 yesterday, a fall of 7.5% (on earnings report) and AAPL is around 10% off highs set last month. (Just those three represent a loss of about $100B in market cap).
–No “algos” of high frequency trading, just “dynamic portfolio insurance” and mouths left gaping as stocks plunged. I was on the CBOT floor on that day, too stupid to know what was going on, but some people made a killing buying treasuries. I remember hearing about the guy that ran Carol Mac in NY walking down the trading aisle telling everyone on the desk to buy every bond they could at any price…
–Interest rate futures were mixed yesterday after the mid week sell off. Tens and bonds were both up a couple of bps, with bonds right at 3% as the pit closed. I marked a new high in 2/10 at 152.6 (+1.4).
–The short end of the curve has finally had some movement, but no real changes in terms of Fed policy expectations. However, positions have been built with confidence regarding the Fed’s vow to keep rates low, and fraying of that confidence could easily cause an outsized reaction. For example, 2 yr notes have jumped from 23 bps to around 29.5 in the last week, and there is still a large short position (40k) in TUZ 110 puts. In euro$’s as well, there had been plenty of put selling to finance long call spreads…should a true unwind begin it will get ugly.
–Today’s calendar is light. Existing home sales expected 4.75m rate from 4.82 last. In general, home sales have been slowing improving over the past two years as prices adjusted and mortgage rates fell.
–Next week is also fairly quiet in terms of news, though the FOMC meeting is Wednesday and the treasury auctions 2. 5 and 7 years starting Tuesday.

Posted on October 19, 2012 at 5:31 am by alexmanzara · Permalink
In: Eurodollar Options

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