The author describes buying stock-index futures during the 1987 crash, losing rapidly and adding more after hearing clients’ concerns. The next day brings both a higher margin requirement and a recovery that permits an exit.
Examine the sequence
This episode makes the appeal and danger of contrarian action visible together. The later rebound is part of the story, but so are the immediate loss and the funding pressure. It cannot establish that every panic is an asymmetric buying opportunity.
Worked example
In a fictional stress event, an asset rebounds after a 30% fall. A participant who was forced to close after the first 20% decline receives no benefit from that rebound.
Case connection
A rebound does not demonstrate that an entry was executable or survivable. Reconstruct the intervening path.
The Flash Crash: price and liquidity
Source-grounded facts
E-mini futures and SPY fell about 5% within five minutes, then recovered over the next ten. Investigators examined order-book liquidity.
Context
On 6 May 2010, US equity and futures markets experienced a sharp, short-lived disruption. Investigators needed more than closing prices to reconstruct the episode.
Outcome
The price recovery did not erase the disruption. The investigation used trading records and liquidity data to distinguish the sequence of events from stories based only on a chart.
- Around 2:40 p.m., E-mini S&P 500 futures and SPY fell roughly 5% in five minutes, then recovered over the next ten.
- During the recovery, some individual stocks and ETFs traded at extremely low prices before rebounding.
- Staff examined full order books and found that futures buying depth had fallen dramatically; equity liquidity problems followed.
Case analysis
The chart’s low and recovery create an attractive story when viewed afterward. An actual participant needed an executable order, sufficient capital and time to remain exposed. Reconstruct these conditions at the moment of entry, before using the rebound as evidence that buying was sensible. The later price alone cannot describe the quality of the earlier decision.
Try it
Write a timeline of the episode: entry, additional exposure, adverse move, margin change and exit. Identify where survival was uncertain.