Eugene Linden
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Latest Musing

THE PROBLEM WITH MUSK'S BID FOR TWITTER IS NOT THAT HE'S A BILLIONAIRE

Matt Taibbi, a journalist whose writing I admire, has joined the throng decrying the hypocrisy of pundits who write on the pages of the Washington Post (owned by a billionaire) that if billionaire Elon Musk buys Twitter it will be a threat to democracy. This is too glib. The problem isn’t b...

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Books


Fire & Flood
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Deep Past
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Articles by Category
endangered animals
rapid climate change
global deforestation
fragging

Books
The Ragged Edge of the World



Winds of Change
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Afterword to the softbound edition.


The Octopus and the Orangutan
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The Future In Plain Sight
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The Parrot's Lament
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Silent Partners
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Affluence and Discontent
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The Alms Race
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Apes, Men, & Language
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Endangered_Animals

Eugene Linden's Publications

Books [reverse chronological order]

THE OCTOPUS AND THE ORANGUTAN; More True Tales of Animal Intrigue, Intelligence, and Ingenuity. Hardcover: Dutton; Aug. 2002.

THE PARROT'S LAMENT; And Other True Tales of Animal Intrigue, Intelligence, and Ingenuity. Hardcover: Dutton; Sept. 1999. Softbound and 11 foreign editions

THE FUTURE IN PLAIN SIGHT: Nine Clues to the Coming Instability. Simon and Schuster: August 1998. Soft: Plume; Feb. 2002

SILENT PARTNERS: The Legacy of the Ape Language Experiments. Hardcover: TIMES Books; April 1986. Soft: Ballantine; August 1987. Foreign: Dobutsusha Ltd., Japan; 1987.

AFFLUENCE AND DISCONTENT: The Anatomy of Consumer Societies. Viking/Seaver Books: 1979.

THE ALMS RACE: The Impact of American Voluntary Aid Abroad. Random House: 1976.

APES, MEN, AND LANGUAGE. Hardcover: Saturday Review Press/Dutton; Jan. 1975. Soft: Penguin; Feb. 1976, revised edition, 1981. Seven foreign editions.

Selected List of Articles [reverse chronological order]

The Nature of Cuba, Tiny frogs. Vst swamps. Pristine rivers. Whether by design or default, the island boasts the Caibbean's best-kept wildlands. But for how long? , Smithsonian, May, 2003 [COVER]

Who's Going to Pay For Climate Change?; The threat of lawsuits — and an exodus of insurance companies — may finally force corporations to think green, Time.com; February 7, 2003

Eugene Linden Diary, Slate; June 25-28, 2001.

The Road To Disaster; If Brazil paves this route through the Amazon, the earth's largest rain forest could go up in flames, Time; October 16, 2000; ENVIRONMENT; Pg. 96. [INTERNATIONAL COVER]

The Big Meltdown; As the temperature rises in the Arctic, it sends a chill around the planet, Time; September 4, 2000; ENVIRONMENT; Pg. 52. [INTERNATIONAL COVER]

Condition Critical; An exclusive look at a U.N. assessment of Earth's ecosystems shows they are strained to the limit, Time; Spring 2000; STATE OF THE PLANET; Pg. 18. [COVER]

Bats And Brokers; Looking for clues to explain Tuesday's market gyrations? Observe a bloodsucking mammal, Time; April 17, 2000; Pg. 92.

Facing Our Ecofolly; Environmental abuse and overpopulation mean the worst is yet to come, Time; January 31, 2000; TIME LATIN AMERICA; LATIN AMERICA; Viewpoint; Pg. 19.

Forcasting the Digital Age, Slate Dialogue; First entry: October 14, 1998.

Volatility: Get Used to It; The global market magnifies our worst instincts, Time; September 28, 1998; INT TIME ATLANTIC; Viewpoint; Pg. 89.

Smoke Signals; Vast forest fires have scarred the globe, but the worst may be yet to come, Time; June 22, 1998; ENVIRONMENT/PLANET WATCH; Pg. 50.

How to Kill a Tiger; Speculators tell the story of their attack against the Baht, the opening act of an ongoing drama, Time; November 3, 1997; TIME ASIA; Pg. 24.

What Have We Wrought?; Our descendants in the next century may find themselves paying dearly for the material magic of the consumer society, Time; November 1997; TIME ASIA SPECIAL ISSUE/OUR PRECIOUS PLANET; OVERVIEW; Pg. 10.

Legions of the Dispossessed; Land degradation is creating multitudes of ecomigrants who cross borders and threaten the security of nations, Time; November 1997; TIME ASIA SPECIAL ISSUE/OUR PRECIOUS PLANET; VIEWPOINT; Pg. 28.

A World Awakens; History Shows that societies pollute first and pay later. Will the new awareness change our ways before it’s too late? Time; November 1997; TIME ASIA SPECIAL ISSUE/OUR PRECIOUS PLANET; PERSPECTIVE; Pg. 80.

A Way to Break the Impasse on Global Warming, The New York Times; September 27, 1997, Saturday, Late Edition - Final, Section A; Page 15; Column 1; Editorial Desk.

From Rio to Ruin?; Maybe not. As the U.N. Dithers, the poor take action, Time; July 7, 1997; VIEWPOINT; Pg. 33.

Antartica; Warnings from the ice the conventional wisdom is that climate change will be gradual and moderate. But what if it is sudden and extreme? A frozen wilderness may hold the answer, Time; April 14, 1997; ENVIRONMENT; Pg. 54. [INTERNTIONAL COVER]

Global Fever; Climate change threatens more than megastorms, floods and droughts. The real peril may be disease, Time; July 8, 1996; ENVIRONMENT; Pg. 56.

The Tree Gods Are a Bit Testy, The New York Times; June 22, 1996; Op-Ed.

The Exploding Cities of the Developing World, Foreign Affairs; January/February 1996;

ESSAYS; Pg. 52.

The Tortured Land; An epic landscape steeped in tragedy, Siberia suffered grievously under communism. Now the world’s capitalists covet its vast riches, Time; September 4, 1995; Pg. 42. [COVER]

Chain Saws Invade Eden; Vast, pristine forests in South America's sparsely populated Guyanas ought to be safe. Not so., Time; August 29, 1994; U.S. Edition, ENVIRONMENT; Pg. 58.

Ancient Creatures In A Lost World; In an isolated, rugged region that divides Vietnam and Laos, scientists find a trove of new species, Time; June 20, 1994; U.S. Edition, ENVIRONMENT; Pg. 52.

Population: The Awkward Truth, Time; June 20, 1994; U.S. Edition, ESSAY; Pg. 74.

Tigers On The Brink, Time; March 28, 1994; U.S. Edition, Pg. 44. [COVER]

Burned By Warming, Time; March 14, 1994; U.S. Edition, ENVIRONMENT; Pg. 79.

Sustainable Follies, Time; May 24, 1993; U.S. Edition, ENVIRONMENT; Pg. 56.

Who Lost The Ozone?; How the world waited too long to rescue the shield that protects earth from the sun's dangerous UV rays, Time; May 10, 1993; U.S. Edition, ENVIRONMENT; Pg. 56.

Will the System Defeat Al Gore? Time; February 1, 1993; U.S. Edition, ESSAY; Pg. 74.

Megacities,Time; January 11, 1993; U.S. Edition, Pg. 28. [COVER]

The Green Factor; Does protecting the planet destroy jobs? Time; October 12, 1992; U.S. Edition, ENVIRONMENT; Pg. 57.

The Last Eden; A trip into a remote African rain forest is a journey back in time to a world where the animals have never encountered humans. Time; July 13, 1992; U.S. Edition, Pg. 62. [COVER]

Summit To Save The Earth; Rio’s Legacy; Time; June 22, 1992; U.S. Edition, Pg. 44.

Summit To Save The Earth; Population: The Uninvited Guest, Time; June 1, 1992; U.S. Edition, Pg. 54.

Apes and Humans: A curious kinship, National Geographic; March 1992. [COVER]

Demanding Payment for Good Behavior, Time; February 3, 1992; U.S. Edition, ENVIRONMENT; Pg. 52.

Hot Air at The Earth Summit?; As the U.S. stonewalls a Rio meeting, citizens offer a planet-saving proposal, Time; November 4, 1991; U.S. Edition, ENVIRONMENT; Pg. 77.

TIME cover story: ">Lost Tribes, Lost Knowledge, Time; September 23, 1991; U.S. Edition, CULTURES; Pg. 46. [COVER]

Foreign Aid; Good Intentions, Woeful Results; How an ambitious environmental program ended up damaging the tropical rain forests, Time; April 1, 1991; U.S. Edition, WORLD; Pg. 48.

Endangered Earth Update; Is the planet on the back burner?; War and recession may be grabbing the headlines, but the relentless trashing of the world’s air, land and seas continues apace, Time; December 24, 1990; U.S. Edition, ENVIRONMENT; Pg. 48.

The Last Drops; Population growth and development have depleted and polluted the world's water supply, raising the risk of starvation, epidemics and even wars, Time; August 20, 1990; U.S. Edition, ENVIRONMENT; Pg. 58. [INTERNATIONAL COVER]

Dashed Hopes and Bogus Fears; The Smithsonian chronicles an unpredictable Information age, Time; June 11, 1990; U.S. Edition, TECHNOLOGY; Pg. 58.

Earth Day; Will the Ballyhoo go bust? Time; April 23, 1990; U.S. Edition, ENVIRONMENT; Pg. 86.

Can We Really Understand Matter? Time; April 16, 1990; U.S. Edition, SCIENCE; Pg. 57.

How the Earth Maintains Life; An intriguing scientific theory continues to win adherents, Time; November 13, 1989; U.S. Edition, IDEAS; Pg. 114.

Special Report: Greening of Geopolitics; How the U.S. Can Take The Lead in the Third World; First: stop sending mixed signals, Time; October 23, 1989; U.S. Edition, ENVIRONMENT; Pg. 63.

Playing with Fire; Destruction of the Amazon is "one of the great tragedies of history", Time; September 18, 1989; U.S. Edition, ENVIRONMENT; Cover Story; Pg. 76. [COVER]

Putting the Heat on Japan; Accused of ravaging the world's forests and seas, Tokyo starts to clean up its act, Time; July 10, 1989; U.S. Edition, ENVIRONMENT; Pg. 50.

BIODIVERSITY; The Death of Birth; THE PROBLEM: Man is recklessly wiping out life on earth, Time; January 2, 1989; U.S. Edition, PLANET OF THE YEAR; Pg. 32. [COVER]

Putting Knowledge to Work; Suddenly, artificial intelligence produces some results, Time; March 28, 1988; U.S. Edition, TECHNOLOGY; Pg. 60.[COVER]

Boom in the Bust Market; Taking Stock in Bankruptcy, Time; October 12, 1987; U.S. Edition, ECONOMY & BUSINESS; Pg. 52.

The Gambia; signs in the wilderness, The Atlantic; March, 1986; Vol. 257 ; Pg. 32.

Let A Thousand Flowers Bloom Inc., April, 1984, THE AGE OF THE ENTREPRENEUR; Pg. 64.

Politics Means Getting To Say You’re Sorry Wall Street Journal, Op-Ed 1984.

The Demoralization of an Army: Fragging and Other Withdrawal Symptoms Saturday Review; January 8, 1972.[COVER]

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Short Take

HOW THE OPTIONS TAIL HAS COME TO WAG THE MARKET DOG: A Simple English Language Explanation of How Structural Changes in the Stock Markets Contribute to Whipsaw Movements in Prices.

Lately a string of violent price movements and reversals in the equity markets make it look like the markets are having a nervous breakdown. The last day of trading in April 2022 saw a 939 point drop in the Dow. The day before that, the Dow rose about 625 points, and two days before that it fell over 800 points. The very next week, after two quiet days, the Dow rose over 900 points after the Fed announced its biggest rate hike in 22 years (ordinarily a big negative for the markets), and then, the next day, fell over 1000 points (more on this later).  There have been plenty of headlines – about the Ukraine Invasion, inflation, the threat of a Fed caused recession, supply chain disruptions – to justify increased uncertainty, but the amplitude of the moves (and the sudden reversals) suggest something more may be at work. Here follows an effort to explain in simple language the significant changes in the market that have contributed to this volatility.

 

“This time it’s different” is perhaps the most dangerous phrase in finance as usually it’s uttered by market cheerleaders just before a bubble bursts. That said, markets do change, and those changes have their impacts. One change in the markets has been the shift from intermediaries (such as brokers) to direct electronic trading, a shift that has made the markets somewhat frictionless, and allowed computer driven funds to do high speed trading. This shift began a couple of decades ago. Today’s markets can move faster than a human can react.

 

Another shift has been the degree to which passive investing through index funds and algorithmic trading through various quant funds have come to eclipse retail investing and dominate trading. A consequence of this is that to some degree it has mooted individual stock picking because when investors move in or out of index funds, the managers have to buy or sell the stocks held on a pro rata basis and not on individual merit. This change too has been developing over recent decades.

 

A more recent and consequential shift, however, has been the explosion in the sale of derivatives, particularly options (the right to buy or sell a stock or index at a specified price on or before a specific date). Between 2019 and the end of 2021, the volume of call options (the right to buy a stock at a specified price on or before a particular date) has roughly doubled. During times of volatility, more and more retail and institutional investors now buy calls or puts rather than the stocks. 

 

Today, trading in options has reached a scale that it affects market moves. A critical factor is the role of the dealers who write options and account for a significant percentage of the options issued. Dealers have been happy to accommodate the growth in option trading by selling calls or puts. This however, makes them essentially short what they have just sold. Normally, this doesn't matter as most options expire out of the money and worthless, leaving the happy dealer to book the premium. Being short options, however, does begin to matter more and more as an option both moves closer to being in the money and closer to expiration. 

 

This situation is more likely to occur when markets make large and fast moves, situations such as we have today given the pile of major uncertainties. Such moves force dealers to hedge their exposure. 

 

Here’s how it works. If, for instance, a dealer has sold puts on an index or a stock, as a put comes closer to being in the money (and closer to expiration), the dealer will hedge his short (writing the put) by selling the underlying stock. This has the combined effect of protecting the dealer -- he's hedged his potential losses – while accelerating the downward pressure on the price. In other words, this hedging is pro-cyclical, meaning that the hedging will accelerate a price move in a particular direction.

 

Traders look at crucial second derivatives of stock prices, referred to by the Greek letters delta and gamma to determine exposure to such squeezes. As an option moves closer to in the money it's delta -- it's price movement relative to the price movement of the underlying, and its gamma -- the rate of change of the delta relative to a one point move in the underlying, both rise. The closer to both the strike price and expiration date, the more the dealer is forced to hedge. The result is what’s called a gamma squeeze. Once the overhang of gamma exposure has been cleared, however, the selling or buying pressure abates, and gamma may flip, with new positioning and hedging done in the opposite direction. The result can be a whipsaw in the larger markets. This same phenomenon can happen with indexes and futures.

 

How do we know that the hedging of option positioning are contributing to violent price changes and reversals in the market? While not conclusive, perhaps the strongest evidence is that large lopsided agglomerations of options at or near the money have been coincident with surprising market moves as expiration dates approach. In fact, some market players use this data to reposition investments, in effect shifting investment strategy from individual companies to the technical structure of the markets. This is what Warren Buffett was referring to when, at his recent annual meeting, he decried the explosion of options and other Wall Street fads as reducing companies to “poker chips” in a casino.

 

The week of the May Fed meeting gave us a real-time example of how a market move that looks insane on the surface reflects the underlying positioning in various derivatives. To set the stage: ordinarily, given debt burdens and the threat of recession, the markets would be expected to react badly to a Fed tightening cycle that is accelerated by the biggest rate hike in 22 years. On Wednesday, however, market indices began to soar on Wednesday when Fed Chairman Powell, one half hour after the Fed announced it 50 basis point raise, suggested that the Fed was not considering larger 75 basis point hikes during this tightening cycle. Traders interpreted this as taking the most hawkish scenario off the table. Up to that point, institutions were extremely bearish in their positioning, heavily weighted to puts on indexes and stocks, and also positioned for future rises in volatility in the markets. Right after Powell made his comments, investors started hedging and unwinding this positioning, and all the pro-cyclical elements entailed in this repositioning kicked in. By the end of the day, the technical pressures producing the squeeze had largely abated, setting the stage for a renewed, procyclical push downward the next day, as the negative aspects of the tightening cycle (and other economic headwinds) came to the fore. 

 

What these violent moves in the market are telling us is that while in the broader sense, this time is not different --the overall sine wave of the market is still that bubbles build and burst -- how the present bubble is bursting may be following a different dynamic than previous episodes. The changes since the great financial crisis-- the rise to dominance of passive trading through indexes and algorithmic trading through various quant strategies – reduced the friction in the markets as well as the value of picking individual companies. Now, the more recent explosion of option issuance, further accelerates market moves, and leads to unpredictable reversals that have to do with option positioning rather than fundamentals such as earnings, politics, or the state of the economy. 

 

The tail (the options and other derivatives markets) now wags the dog (the equities markets).

 

 



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