Nov 11, 2004

...and options

I was just sitting here thinking how ideal this tape is for those who are short options into expiration next week. Too overbought to advance and too much momentum to pullback. Off the top of my head it would not surprise me to see GOOG pin 175 or FNM pin 70.

I expect next week to see continuing pressure on the VIX. Over the long run should head lower as too many people are sitting on trading desk trying to game the next point and through next week I bet lots of options holders are going to tire of waiting and lock in some profits after the big move we just had. This trend can go on for a long while as very few people seem aware of the structural impact of hedge fund dominance in daily trading. People see the leverage in the economy implying higher risk and thus higher volitility but that argument has been very wrong and I think it is because we are no where near the limits of liquidity available for short-term trading.

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