Managers feel the derivatives pinch

True, May was difficult, but managers say new instruments may be partly to blame

"There was a really big derivatives component in this correction which we haven't seen before," says Peter Schell, head of research at Park Place Capital, most significantly variance swaps, used by many managers to trade volatility, in May's painful crunch.

Banks selling them must hedge positions with strangles, he notes. "When the market moves too much, the banks have to sell gamma," he says. When the market fell significantly, it collapsed at 4 o'clock, he says. "It's like 1987. It's portfolio