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>
> Let's say your a huge fund and can easily adjust the hedges for the
> desired ratios. You are merely looking to save some of your fund at
> that point. Would the fills have killed you in a market like Monday's?
>
> Does the group think that his lack of ability to get a fill in the
> futures was Nied's problem? If so, why not go to a major Street desk
> and get a synthetic of some sort? I am guessing that his REFCO coverage
> was purely in a brokering role. I was surprised that this guy didn't
> have Street coverage, where he may have gotten some protection from an
> exotic derivative packaged quickly. Is this common? Am I way off the
> mark -- I don't know that much about the institutional market on the
> equity side.
My example was not to suggest that Vic shouldn't have protected himself,
I was trying to indicate the problems with using futures to protect for
a small trader like most of us.
Yes, it is much easier with a large position to stay delta neutral. I
can't say why Vic wouldn't have, except that he was taking a bet by
selling puts and he didn't want protection because he thought he would
be right. My understanding of the situation is that the fund went into
a negative equity situation. In that instance, Refco is not allowed to
let the customer initiate any new positions until margin is paid, even
if the new positions might theoretically reduce risk (i.e sell
futures). Refco's hands were tied, Vic didn't have the cash, so they
blew him out. That is what I have heard and it makes sense. Maybe
futures being locked limit were a problem too.
Eric
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