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ALSI vs the physical basket

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Not applicable
Question...if US markets / gold etc rises overnight and everyone rushes to go long ALSI, doesnt that mean the banks are selling the ALSI contracts and hence will hedge buy buying the underlying basket? BIL is 16% of this basket and will be bought purely to hedge the speculators demand. So in other words the BIL share will rise but not based on fundamentals/technicals, just as a mechanism to hedge. Can we in any way use this to short term trade BIL?
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4 REPLIES 4
SimonPB
Valued Contributor
nope, other traders are selling it and the vast majority tarde the alsi unhedged ..
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Not applicable
Okay, I see. What if the ALSI is poised to fly due to overnight developments and people are going crazy for your call warrants at the bank. Wont your traders (who are selling the calls) hedge themselves by buying the basket? What I am saying is that there will be shares there, that wont necasarily be good buys, that will be bought solely for you guys to sell the warrants... Now I am singling out BIL as it is the biggest one in the basket (16%). Can we not trade this somehow? What I mean is, if the alsi is rising like crazy and there is no fundamental reason for BIL to advance would the odds be in our favour to short BIL? (As in we could say it increased in price due to circumstance of hedging rather than fundamental/technical data)
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SimonPB
Valued Contributor
in the case of ssf's, warrant an instalments the issuer does hedge .. but the volume on these instruments are often very small compared to overall stock volumes .. but you logic isn;t all flawed, when I buy a call it is bullish for the underlying share (albeit maybe very small bullish) and bearish when I sell .. an inverse for puts ..
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Not applicable
You damn straight my logic isnt flawed. Now I'm gonna trade this thing! WATCH ME CRASH AND BURN!!! MWUH HAA HAAA!!!!!
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