In the 1987 crash, there was an accelerator mechanism via portfolio insurance. Basically, Rubinstein, Leland and O'Brien got a bunch of investors to buy into portfolio insurance, which would sell securities as prices fell, emulating a put option position. In the crash, this just made things drastically worse.
But it seems hedge funds adopt this sort of strategy. Several prominent hedge funds moved to cash recently: Steven Cohen, Israel Englander, John Paulson. That's a lot of money selling equities, buying yen, etc. No wonder such disparate popular hedge fund trades: long oil, the carry trade (long Aussie dollar, short yen), equities. They were all being unwound.
Your post should read "emulating a short put".
the true delta neutral strat. i hear citadel is down 40%? do you still have the defprob email? i sent you one a week some a ago but i take it back. need to research some more on the subj.
I didn't understand the going to cash comment either, because it takes away the Volatility Play. Volatility is good for trader's but bad for investors.
I read this as our "correlation" models are out of whack, so until we get emotions out of the market, we ain't trading.
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