There aren't many days that will rival May 6th. It's interesting how a 1000 point swing in the Dow will make everyone forget the April Unemployment report that came out May 7th.
As an option trader, I found a sick pleasure is watching the violent swings across every asset class. Whether it was the bonds gap higher or the S&P's crushing decent, I was fascinated at the power of their respective retracements.
My hope is that the locals in my former pits were all long gamma and had a chance to really stick it to paper! Though, history tells me that that is rarely the case. Paper has an uncanny ability to strip the pit of all gamma {and vega} prior to moves like May 6th. As usual, we were always the last to know.
Sitting on the desk, just a few moments before the wheels came off the wagon I witnessed an interesting phenomenon in the Fed Funds markets. Many of the back months futures (Jan 2011 and later) are priced by one or two very large firms and their algo-trading model. Usually these computers keep the markets a few ticks wide and though they're rarely afforded the opportunity trade these contracts, they will snap into action if something seems out of line. However, just a few moments before the massive selling in the S&P's the machines widened their markets. 30 seconds later, they actually pulled themselves out of the market entirely. When that happened, every other computer driven model was clueless and they pulled their markets as well, in EVERY Fed Funds market {even spreads}. As I looked around the room at the other various traders we came to the sudden realization that we were the only people dumb enough to still be making markets. As we scrambled to hit our 'PULL ALL' buttons, the chaos began.
Hindsight trading is 20/20 and everyone would be a millionaire. I was personally disappointed in my inability to buy some of the insanely cheap spreads in our markets. This past weekend, I was reminded by one of my old friends who says it best,
"What beat me was not having brains enough to stick to my own game--that is to play the market only when I was satisfied that precedents favored my play." Reminiscences of a Stock Operator Lefevre.
It was favorable to buy everything at almost zero and then watch them all trade up 2 full ticks. If there's a next time, I pray I'll be able to pull the trigger.
~LH
~LH
