Option Queen Letter

On Friday December 14, 2007 ICE Futures US, announced that the open-out-cry markets, for all but a hand full of futures contracts, will end removing the trades to cyber-space. Yes, options will continue to trade on the floor in open-out-cry, but futures will be gone from the pits. While we understand the expense involved with the support of an open-out-cry market, we also know full well, that in times of market disruptions, the open-out-cry market is the only market that can fairly disseminate prices. When cyber-space fails the open-out-cry market survives. This unanimous action by the ICE Futures US board in closing these vital markets is a mistake that will come to light during a crisis.

We note that the NYMEX, COMEX, CBOT, CME and other exchanges here in the USA have left their open-out-cry markets alone. The CME which does more business than the ICE Futures US softs market does, and apparently believes that this forum of traders has value. Shame on you ICE Futures US. This is what happens when non-traders take over an exchange.

This week is a quadruple witch week which will usher in exceptional
volatility. We are in the pre-Christmas mode and the market is
depressed enough to end the expiration with a boost to the upside. By
Friday noon, with the future’s expiration out of the way early in the
morning trade, it is likely that things will slow to a crawl. Christmas
Eve is Monday and that session will only be a half-day, inspiring some
early-escapes to that Christmas vacation.

Forget about sub-prime problem, we have the “Exotic Mortgage” mess
next, and this one involves the high end borrower and not the low end
borrower! What happens when the McMansion is mortgaged at a higher
valuation than the McMansion can be sold for?

What happens when the real-estate taxes are due on the McMansion?
Here is a thought, strip the house of all salable items and abandon it.
Let the bank, the lenders, and the municipality fight over who gets the
leftovers. No, this is not an imaginary scenario, but a very real one
which is the next part of the housing bubble to burst! Here we are
hitting the high end, not the low end of real-estate. Further, there
will be less compassion for this group of borrowers than was seen for
the low-end sub-prime borrowers. Think about some of the expensive high
end communities without a tax base to draw upon, interesting huh!


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