08 January 2007

Margin Hysteria Rules

Many folks are all a-flutter over the new Margin rules that set to be introduced this April. Most of the hype seems to centred around the leverage available under new rules.

Hitherto unavailable leverage IS available on a some strategies, most notably, buy/writes. But the most amusing thing is ersatz experts waxing lyrical about this amaaaaaaazing leverage now available on such things as married puts and collars.

This really ignores simple synthetic relationships between strategies. Possibly intentionally.

For instance, I read one post on a bulletin board from an allegedly ex-market maker, extolling the virtues of the new leverage married puts will have. Well excuse me, but a married put is just a blinkin' synthetic call! The leverage has been available all along!

It has gotten the stage where folks are predicting either 1/ a leveraged, LCTM style perfect storm, taking out the whole market, or 2/ an incredible bullish flourish as all and sundry massively add to their portfolios, courtesy of this "new" leverage.

I'm predicting business as usual with some small scale stupidty around the edges, just like normal LOL

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