02/28/2012 Intraday Watering

[btran874]

13K DOW closed. Wow! Mom&Pop are so glad to see that number. Man, we're gonna see at least a few more days of rally to trap them then.

[jarbo456]

good question i came across...anyone have an answer?

1) Is it fair to say ETFs impact the underlying more so than ETNs since they must actually accumulate a book of the underlying securities, while ETNs must simply mimic the return?

2) If so, is it possible that the enormously popular ETN trading vehicles could have an impact on the underlying in a different way than described above? In other words, because ETNs are becoming more popular among sophisticated traders AND it's easier for the average investor to execute a hedge by purchasing VIX option derivatives (particularly one of the ETNs), capital perhaps flows there instead of directly into the VIX option market. This then artificially softens demand in the underlying VIX market, which then mutes the volatility reading and thus the prices of all ETPs? If the volumes of the ETNs are any indication of how many buyers and sellers could be “missing” from the VIX options market, buyers of VIX outnumber buyers of XIV 3 to 1. If that ratio were pushed into the underlying market, would VIX get nudged upwards as the "real" pricing of puts/calls gets reflected?

In summary, I’m curious to know if the “real” supply/demand dynamics are being acted out in the ETPs instead of the underlying and if that—in an ironic twist—artificially depresses the value of the underlying.

[stucap]

honesty has anyone ever seen a market like this

SEE: 2010

[stucap]

13K DOW closed. Wow! Mom&Pop are so glad to see that number. Man, we're gonna see at least a few more days of rally to trap them then.

agreed.

[SWalsh]

It worked once!