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What's happening with pre-market March 17th?

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basilio

basilio

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I've just noticd that across a number of major shares there seems to be some remarkably large orders placed well above yesterdays closing levels. This is BHP , CBA, LNC, OSH possibly many more.

On the sell side there is a sorry litany of deep sales which look as if they would take many shares back into the muck. Any ideas on the reality behind this ?
 
Re: Whats hapening with pre market March 17th

The SPI looks as if it will open 76 points down. Well if BHP is up 4.9% and CBA up 5% OSH UP 6% this isn't going to happen??? (these are the current reads )
 
Re: Whats hapening with pre market March 17th

The USD is starting its collapse this morning... NZD/AUD getting killed vs. JPY.

I would be waiting for a statement from central banks... possible fx intervention....
 
Re: Whats hapening with pre market March 17th

There was some hectic activity last night, not the least of which for our market was a 2 cent fall in the AUD/USD. It has risen half a cent back in the last hour.

PANIC EVERYONE! :p:

I'd expect our market to hold up pretty well once the opening dust has settled.
 
Re: Whats hapening with pre market March 17th

Total US Debt Hits $14.237 Trillion, Debt Ceiling At $14.294 Trillion

US default inc?
 
Re: Whats hapening with pre market March 17th

One of the market behaviour that I don't fully understand... it's like there is some etiquette that says... on futures exp lay all your buy orders out first then those who want to sell show their hand.

My account which show me my P&L based on the match price flutuated between -7% to +8% in the morning.

It's about +1% now :)
 
Re: Whats hapening with pre market March 17th

professor_frink said:
futures expiry.
Click to expand...

It's the more heavily traded, three monthly index futures and also index options expiry this morning. As a result, the major components of the ASX 200 can be extremely volatile at pre-open on these quarterly expiry times.
 
This happens every third Thursday in every third month of the ASX Trading Year:

SPI Futures and Index Options expire. Most of these options are written by the large institutional trading houses, who are the only players with the clout to "guess" where the XJO is likely to be 3 months from now. Barring really left-field accidents like the disaster in Japan, it is amazing how accurate their predictions are.
How do they do it???

On these four annual key dates, the ASX accommodates their efforts by allowing double the time between group openings, so their computers have more time to adjust their bids and offers for the next batch of stocks that make up the ASX Top 200 - so the index, as calculated from the Opening trades of those stocks is just on the "right" side of the strike price their options have been written to.

Sounds confusing?
Imagine, a Multi has sold Puts for the strike 4500 at today's Open. They collected shiploads of money from punters, who bought the Puts as "insurance" against their portfolio losing a lot of value when the R's falls out of the XJO. If you followed the recent charts, you'd agree that 4700 or 4800 was something many would have hoped for. So they would have bought Puts that entitled them to a decent payout should the ASX drop below what they thought they might be prepared to take.
Conversely, punters who had traded the Short side, would buy Calls to hedge against too much of a rise against their short positions.

Usually, the "Open Interest" - i.e. the number of bought Puts and Calls at the various levels - will be distributed around a consensus median value - e.g. 4700 - where Calls and Puts are about balanced. Above, there will be an excess of bought Calls, below, it's the Puts that are in the majority. In "normal" situations, the writers will try to make sure that the premiums they collected on either side remain in their pockets, i.e. the snapshot of XJO, which determins the payout, minimises the amount their clients can claim.

Today of course, something went wrong, and the writers with the biggest exposure to payouts at 4600 and above would have scrambled to buy protection for themselves, so they could reduce the pain by sharing it with others. And that's why the struggle ensued around 4500 this morning: None of the Calls were able to be exercised, but protective Puts were.

Given the Open Interest distribution as shown in the following chart, compare the resulting pie charts, showing the different levels of calls and puts that were in the money as opposed to those out-of-the-money expiring worthless (which means the writers keep the premium).

Chart 1: snapped immediately before today's ASX Open, with pie charts reflecting an Open (strike) just above 4550:

XJO OI payola-1.gif
Now check the case - probably close to reality - where XJO stood just a tick under 4500:

XJO OI payola-2.gif
Lastly a "What If" the upheaval had NOT happened and the strike could have been "price-managed" near the equilibrium, where surplus Puts and surplus Calls cross over, i.e. between 4650 and 4700:

XJO OI payola-3.gif

As you see: There are Big Bickies at stake - worth placing a few decoy bids and offers on the Majors that constitute the ASX Top 200.
 
Thanks for the story Pixel.. Didn't really understand it but obviously there was something happening.
 
I don't think you are right here, pixel. Big money won't sell naked options and beg for gods on expiry day looking at Open Interest. I guess Big money trade delta-neutral in which case their worst scenario was pinning around 4500 strike so that they can't hedge their 4500 calls/puts properly. That's why they do their best to make sure future lands somewhere between the strikes.
 
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