Oil’s Black Friday… Bloomberg

Devils Krishna Kumamoto, Bloomberg, writes about Friday’s crash in oil, here…

”Then the options market kicked in. When prices fall heavily, banks often sell futures contracts in order to hedge themselves against losses from put options — contracts that grant the right to sell at a particular price. Banks often sell puts to producers who want to protect against a bear market. This feedback loop, known as negative gamma to options traders, was seen as a factor on Friday.

“Dealers just took down hedges and they are shorter put options than normal, so must sell futures to hedge,” said Ilia Bouchouev, a partner at Pentathlon Investments and former head of oil derivatives at Koch Supply and Trading.”