Shorts on the run after-hours
Not only did we reverse from a DOW -150 to a +410 day, the after-hours is on a complete tear with YM up 206, ES 34 and NQ 35. It's a stampede. As we have seen many times before, a bear market rally can erase a week or two of selling in a day or two.
ES tagged 1239.50, 61.8% of september. Note Monday's gap at 1235/1258.50. We will probably cool down at some point, but anyone that left some bear call credit spreads open is going to feel some pain and regret not closing the position today. Obviously, many hedge funds played those options and are now scrambling to cover by buying futures. Let this be a lesson: always buy them back the day of expiration, never, ever let them ride in the hopes of a worthless expire. The settlement value for SPX options takes place at the open and there is nothing you can do about it other than buying futures.
The VIX could drop dramatically tomorrow on this global short attack and that in turn could deflate some gains on any long calls, even if you nailed the lows. It could be frustrating and a perfect examples why I prefer futures when directional (individual stocks is another story). Sometimes, I will even treat them mentally like an option, allowing myself more room. The reward is immediate and of course at all hours. This, of course, does not apply to selling options, an entirely different set of rules.
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on Thursday, September 18, 2008 at 9/18/2008 08:53:00 PM.
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9/18/08 10:43 PMNot to mention that the SPX settlement is figured with a magic formula that takes the opening of each stock of the 500 into account making the number many times higher or lower than the open itself. This is because one stock might have gapped open disproportionately to the others thus influencing the settlement number. It can make for many a sleepless night on Thursday (settlement eve). NEVER hold European style options through expiration.
9/18/08 10:47 PM
That is correct, thanks for expanding.
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