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The Derivatives Parabola


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Funny how there seems to be an "aversion to risk" lately, yet Riverboating of derivatives of every stripe, race, color, ethnic origin is accelerating and gaining speed.

 

Why is that?

 

Its because everyone is so pre-occupied by the idea of clicking a mouse and making "vast fortunes" by gaming stock options and futures on a computer screen.

 

Now the exchanges are "rejiggering" equity option quotes to scale it down to 1 cent increments.

 

For the sole purpose of increasing 1-minute chart gaming, increasing trading volumes, and cashing in on the commision frenzy.

 

Any wonder why CME, ICE, BOT, etc. have been home run IPO's?

 

Just wait and see what happens when Interactive Brokers does their IPO. It will probably be another 500% winner.

 

Think those 300 point down days are scary?

 

Wait until you have all those Black Boxes trading options in 1 penny increments, gaming a 30-second chart.

 

No doubt, we will be seeing 300 point moves intraday, twice or three times a day.

 

NYSE trading will be about as frenzied as a Pai Gow game at the Hustler Casino in Gardena, CA.

 

In the meantime, the exchanges and the Bulge Firms continue to rake in obscene profits from trading commissions.

 

 

Excerpts from Bloomberg

 

March 19 (Bloomberg) -- Kevin Fischer spent 17 years as a floor trader at the Philadelphia Stock Exchange until Interactive Brokers Group Inc. moved him to its headquarters in Greenwich, Connecticut.

 

Now he sits in front of a computer screen, creating a trading system to help investors use algorithms, sets of rules calculating the best time and price to buy or sell securities.

 

Every firm on Wall Street wants a bigger piece of options trading because the market is growing twice as fast as demand for stocks. Average commissions reported by institutional investors rose 51 percent last year, according to a survey of 49 funds by Greenwich Associates, the 35-year-old financial-services consulting firm in Greenwich, Connecticut. Institutional investors, who account for about 60 percent of total trading in options, paid at least $500 million in commissions last year.

 

``Estimating the total commission pie in options isn't as easy as in cash equities, where the business is more transparent,'' said John Feng, a Greenwich principal. ``Relative to equities, options are small. But generally speaking, derivatives are seen as a profitable and growing area for the brokerage firms.''

 

Investors traded about 2 billion contracts at the six U.S. options exchanges last year, up 35 percent from 2005, according to data compiled by Chicago-based Options Clearing Corp., which guarantees all transactions in the U.S. market. By comparison, stock trading at the New York Stock Exchange and the Nasdaq Stock Market increased 17 percent.

 

Interactive, led by Chairman Thomas Peterffy, filed last month to raise as much as $540 million in an initial public offering. The company wrote in the prospectus that its market share of U.S. options trades increased to 21.8 percent for the nine months ended Sept. 30 from 12.6 percent in 2004. No exchange or supervisory authority publicly provides official market-share figures.

 

Many options will be quoted in pennies by the end of the year, said J.P. Xenakis, vice president of electronic derivatives sales at Goldman. The SEC, the nation's top financial-market regulator, plans to consider increasing the decimalization program in July.

 

``We're all gearing up to handle increased orders from black-box traders,'' Edward Tilly, vice chairman of the Chicago Board Options Exchange, the largest U.S. options exchange by trading volume, said in a March 14 interview.

 

Investors with more than $50 billion in assets and hedge funds larger than $1 billion call brokers to coordinate about 90 percent of their trades, according to a survey that will be published later this month by Tabb Group, a Westborough, Massachusetts-based consultant to brokerages.

 

Block transactions, defined as trades of more than 10,000 shares, now account for 21 percent of all the stock that changes hands, compared with 52 percent in 2000, according to data on the NYSE's Web site. Algorithmic trading will be behind more than half of the stocks that change hands in the U.S., up from about 30 percent last year, according to Aite.

 

The portion of institutional investors trading equity-index options jumped to 74 percent from less than two-thirds last year, according to a survey published in October by Greenwich Associates. About 81 percent of the 113 hedge funds, pension managers and investment firms surveyed said they traded single- stock options.

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CNN Money - Your Home: 5 tips if you're in too deep

 

1. Sue the homebuilder

 

2. Sue the real estate agent

 

3. Sue the mortgage broker

 

4. Demand a government handout

 

5. If none of the above work, then burn your home to the ground for the insurance proceeds.

 

Most importantly, remember it's not your fault.  Someone else is always to blame.

569065[/snapback]

Who is Sue and how did she get so many titles?

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CNN Money - Your Home: 5 tips if you're in too deep

 

1. Sue the homebuilder

 

2. Sue the real estate agent

 

3. Sue the mortgage broker

 

4. Demand a government handout

 

5. If none of the above work, then burn your home to the ground for the insurance proceeds.

 

Most importantly, remember it's not your fault.? Someone else is always to blame.

569065[/snapback]

 

 

From the link...

 

NEW YORK (Money Magazine) -- Bo and Ana Apostolache loved their three-bedroom home on a cul-de-sac near Irvine, Calif. when they bought it six years ago. Best of all, they could easily cover the $1,400 monthly payments on their $175,000 mortgage.

 

Over the next few years, as interest rates dropped and their home price tripled in value, the couple refinanced several times and tapped $200,000 worth of equity to pay for home improvements - and a Barbados vacation....

 

A year later, their rate adjusted up, adding another $400 in monthly payments, and Bo lost his job as a mortgage broker :lol: :lol: :lol: . Out of desperation, the Apostolaches took a $200,000 home-equity line of credit, in part to help cover the payments, but then quickly realized they were in over their heads.

-------------------------

 

Holy friggin' sheet!!!! They start out with a reasonable $175,000 in mortgage debt and turn it into a $600,000 rathole......WOW!!!.....that's OK though, they're probably the only ones that did something so extreme.

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CNN Money - Your Home: 5 tips if you're in too deep

 

1. Sue the homebuilder

 

2. Sue the real estate agent

 

3. Sue the mortgage broker

 

4. Demand a government handout

 

5. If none of the above work, then burn your home to the ground for the insurance proceeds.

 

Most importantly, remember it's not your fault.  Someone else is always to blame.

569065[/snapback]

 

4.5 Make sure that you paid your homoaners insurance premium first.

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You don't think State Farm, All-State, GEICO, et alia already anticipate this?

 

It is called insurance for one reason - to ensure profits.

 

crazy 8. Those re-fis are something else. HELOC loan statistics are un-wingohockingmoyamensinging-believable.

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Now the exchanges are "rejiggering" equity option quotes to scale it down to 1 cent increments.

 

For the sole purpose of increasing 1-minute chart gaming, increasing trading volumes, and cashing in on the commision frenzy.

 

Remember how Wall Street was up in arms over decimalization in the NYSE ? They said it was the end of the world and bla bla ba... As far as I can see, business went up, not down. Now we're gonna here the exact same thing from the options guys, probably.

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