Word: indexable
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Spirits are still high on the floor from Wednesday's lively market. Yet the Toronto index skids 142 points (4.3%) in the first hour. "This is like a yo- yo," laments one trader...
...wafts through the exchange: Iran is about to accept a cease-fire in its gulf war with Iraq. High-tech stocks like Matsushita and Fujitsu take off. But the Japanese government cannot confirm the report, and stocks retreat. In the final hour, a wave of panic selling drives the index down by 1203.23 points, to 23,201.22. It is Tokyo's second worst one-day beating ever...
Program trading came into its own in 1982, with the advent of stock-index futures. These enable investors to make a bet on which way the entire market is going. Index futures, used with program trades in the stocks on the index, open up a variety of opportunities. One of the most popular takes advantage of momentary differences between the price of a futures contract and of the stocks themselves. When this spread is sufficiently wide, a trader can lock in a profit at no risk by, say, buying the futures and selling the underlying stocks. This practice, called index...
...Monday because the computers that track prices had fallen hopelessly behind. The real culprit was a variation of program trading called portfolio insurance. This is a defensive strategy designed to protect stock portfolios against market downturns. Rather than sell stocks as their prices are falling, portfolio insurers sell stock- index futures. If the decline persists, the futures can be repurchased at a lower level, yielding a substantial profit that will offset some of the loss sustained on the stocks. But traders who buy the futures hedge their positions by making computer-aided sales of the underlying stocks, driving the market...
...leading stocks kept climbing, many others did not. Celanese, for example, had dropped from 118 to 66 since 1927, Philip Morris from 41 to 12. The speculators also did not seem to notice that the allegedly sound economy had started slowing. By October of 1929 the Federal Reserve index of industrial production had dropped from 126 to 117 since June. Homebuilding had been down for several years, and farming had been in trouble since the early 1920s...