Zeev's Turnips Patch-No Politics (ZEEV)

[ajtj99]

If the options writers are 500-points down in the beginning of March (say the market is at 7700 or so and the average price of the futures is 8200), they will short the market down to 7200 or below to break even on their futures positions they wrote.

In other words, they sold something that they needed to be above 8200 Dow in order to break even. If we're at 7700 March 1st, they could be too far away from break even, so they'll short the market down to 7200 Dow or below in order to collect back the 500-points they're behind on their futures positions.

A very good example of this was August 2001. Paul Shread pointed out that the Sept. futures average was about 10,100 if memory serves. When that fell and could no longer be defended, delta hedging kicked in.

You thought it was 9-11, but it was delta hedging by futures writers that helped the most.