Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

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01/27/2005
The Bluff Charge, by Philip J. McDonnell

Our family made the trek to Glacier National Park a few years back. With my wife, son of 10 and daughter age 7 we headed out on a couple mile hike to a promised lake on the map. Glacier is one of the most picturesque parks in the national system. If you get the chance do visit. On our trek we were treated to a completely unspoiled view of glacier-carved scenery. With the exception of the trail itself there was no hint of humanity.

We left from the trail head right outside our lodge parking lot. We were all very careful to note the bear safety warnings. In particular it was noted that the valley population of some 400 bears was drawn to discarded containers of fruit juices. In August the main staple of Glacier bears is huckleberries as they prepare for winter hibernation.

We began our trek out to the lake being mindful to make ample use of our walking sticks with attached jingle bells to warn off the bears. The stratagem worked because we encountered no bears on our hike to the lake and were able to fully enjoy the magnificent scenery unmolested. Our kids had their treats including berry juice at the lake as we all enjoyed the glassy surface of the smallish lake. Although we were a bit disappointed not to encounter the wonderful white bearded mountain goats which also inhabit this area we were grateful not to have encountered a bear. We dutifully packed up out litter to carry back to the lodge.

At each turn on the return trail we were apprehensive. It was now late in the day and bears are known to come out about 4:30 p.m. or so. Of course we were carrying fruit juice laden garbage. Thus the chances of an encounter were rising. Our walking stick bells kept tinkling. As we approached the trailhead I checked my watch. It was 4:55 p.m. A few minutes later we were safely home without incident.

That night we went to the campfire where travelers could share stories. The park rangers explained that the mother bears were especially aggressive this time of year in defense of their young. They still remember when the gray wolf stalked their young in great numbers although now diminished. We learned that bears run 30 miles an hours and can easily run down any human. Also related was the fact that bears can't see very well but have an amazing sense of smell which allows them to follow the scent of berries for miles.

As the ranger talk ended a white bearded old man stood up to speak. He had an amazing resemblance to one of the white haired, white bearded old mountain goats. His wife had the appearance of a salt-and-pepper gray wolf, she was apparently 15 to 20 years younger.

The old man began to relate that he and his wife had returned to the trail head at exactly 5 pm. About a quarter of a mile from the trailhead they had a mother bear charge his wife at full speed. He immediately interposed his body in front of his wife's. (What was he thinking?!?) The bear continued to close until it was but four feet away whereupon it sniffed and grunted and proceeded to turn away. His theory was that it was a mother bear trying to protect her cub from the supposed threat of a wolf (the gray haired wife). He called it a "bluff charge". No cub was seen. My take on these events is that the old goat confused the bear enough so that it saw no threat and determined he certainly didn't smell like a wolf.

The thought has always lingered that our very careful expedition to the lake with returned fruit juice litter as recommended had somehow attracted the bear back to the trailhead area and thus precipitated the preceding events. The timing of our passage at 4:55 and the bluff charge incident at 5:00 at the same location seems more than coincidental. No one will ever know.

In this context it seems a trader nicknamed "The Flipper" uses huge orders to bluff his opponents into the wrong moves. This strategy is quite common, in my experience, and certainly not restricted to this individual. Essentially the idea is to exploit day traders who use stop losses. He will identify a weak bid or ask and cross with it. If it were a bid he would then offer a bid a tick below and again ask at the former bid. Thus a day trader who likes to maintain tight stops will be forced to liquidate a tick below his price of a few minutes before. Essentially he has been bluffed into a small loss.

I have seen this on the QQQ as well as numerous options markets. An option quote might show something like 8000 options bid and asked. So I put in my order at the bid knowing that there are 8000 options ahead. Somehow I find that I get it before the end of the day. The other 8000 bid was a bluff bid which the buyer was willing to cancel to allow me in. The underlying stock did not move to accommodate me. The bluff order simply disappeared.

Another common bluff scenario is when I sell an option at, say, .50. The previous quote had been .25 to .50 (me). Immediately after buying my options at .50 the bluffer moves the bid to .55 and the ask to say .65. If it occurs in the absence of any significant move in the underlying it is undoubtedly a deception. He hopes to panic me into a mere .05 loss to bail out of my position. I never fall for that ruse. That is one of the fundamental advantages of the options markets. You can easily compare your option to the other options and the underlying to ascertain if you are the goat, the wolf or the bear in this scenario.

Larry Williams adds:

I lived next to Glacier Park for 15 years and know it as well as some of my charts. Yes, bears do a bluff charge and, since their vision is a little blurry if you can make yourself look real big they will bluff charge and leave.

That has been done by holding a bike in front of you, stretching out a tarp over your outstretched arms, etc.

The bears of both Glacier and Yellowstone seem to have a callous disregard for us locals. I do not know of a single local resident being killed by a bear.

At the end of each season a T-shirt is printed up with the count, highest I saw was Bears 6, tourists 0.

Locals know the rules better than those who just come to play.

Sounds like our business.

01/30/2005
The Bluff Charge, by George Zachar

In bondland, we used to call this a "facial," as in, "in your face."

Someone lifting an offer and then bidding higher, or hitting a bid and then offering lower, was thought to be attempting to humiliate/demoralize/intimidate his counter-party.

I never observed a case where the tactic worked.

Interestingly, it was possible "in the day" to go back over one's trades and sometimes learn who the counterparty was for a particular transaction.

So we got to learn who the jerks were before the annual rounds of Christmas parties.

And, going forward, we'd have a better grasp of who was doing what in the markets.