Revery: Computerized Stock Market Trading
by Henry S. Patricoff
A recent article in Barron's expressed the view that the options Index market has become so large that
possibly it is the tail that is wagging the dog.
Aside from a spectacular one or two day rise now and then, the stock market has been in a narrow trading
range for many past months. Traders who look for a fluctuating market find themselves frustrated by an
inability to eke out a profit either on the up or down side.
Could there be another reason for this grid-lock? Is it possible that portfolio managers and market trading
operators, after punching out their risk-reward ratios, the Betas, and the Thetas, etc., reach similar
conclusions as to selection and timing? When the time comes to sell, the question is, "To whom?", since
other computers will also read: Unload.
Will a confused public accelerate the present trend and place their investments into the hands of large
funds and managed accounts? If so, instead of customer versus customer or customer's broker versus
customer's broker, it will be Mutual Fund versus Investment Trust, Pension Fund versus College Fund.
Instead of rampant Bull and Bear markets, we must sadly contemplate this last bastion of financial
jousting reduced to the stability of the Municipal Bond market with calculations carried out to four