8 replies to this topic

[Tor]

Mystery trader bets market will crash by a third Renée Schultes 16 Aug 2007 Carry trade unwinds as yen hits one-year high An anonymous investor has placed a bet on an index of Europe's top 50 stocks falling by a third by the end of September, as world equity markets plunged for a third day and volatility hit a three-year high. The mystery investor has bought put option contracts on the DJ Eurostoxx 50 index that will result in a profit if it plunges to 2,800 or below by the end of September. Based on the 2,800 strike price, the position covers a notional €6.9bn, and potentially even more using a market price of about 4,100 when the trades were done on Tuesday and Wednesday. The identity of the investor is unknown but market sources speculated it was either a large hedge fund hedging itself against deepening losses, or a long-only fund manager pressing the panic button to protect its gains. The investor has bought a total of 245,000 put options on the index. The September put option with a 2,800 strike was the most popular DJ Eurostoxx 50 contract yesterday, according to data from Bloomberg. Volatility in European equity markets has risen sharply this week as investors cut back on the amount of risk they are taking. The VSTOXX index, which measures the volatility of the DJ Eurostoxx 50 index, hit 34 this morning, which is more than double its three-year average. Similarly the volatility of the US stock market was trading at almost three times its three-year average, hitting 30 yesterday. However, both indices continue to trade below their 2002 highs. European stock markets were trading down almost 3% at by 13:00 GMT today, after large drops in Asia and Australia overnight. The Australian market fell 300 points at one stage when futures trading was suspended for over an hour and traders were forced to hedge positions by selling physical stocks rather than futures. An analyst at Goldman Sachs JB Were in Australia wrote: "I think I shall remember this day as the day that I saw the market go to hell, look into the abyss - didn't like what it looked like and then came screaming back up as far away from there as it could get. ... It was a truly spooky day and I’ve seen a lot over the last 20 years but today will be one that anyone who saw it will never forget. But this is what market bottoms are made out of." The rise in volatility and risk aversion has also contributed to a sharp appreciation in the Japanese yen, which has been used to finance the so-called carry trade, where investors borrow in a low-yielding currency to invest in one with a higher-yield. Analysts' belief that the yen carry trade is set for a major unwinding has intensified today as the Japanese currency continued to rally in morning trade. The yen strengthened today as it broke through several psychological barriers. The yen hit 113.60 against the dollar by 12:35 GMT, the first time in more than a year it has dropped below 114. The yen was substantially up against the dollar from yesterday, when it traded at above 116. Simon Derrick, head of currency research at Bank of New York Mellon, said: "With any hope of even a brief bounce emerging in the yen crosses evaporating in the fierce glare of another horrible close in New York, it is clear that the vicious, self-reinforcing, downward spiral we were worrying about is already firmly established."

Edited by Tor, 28 August 2007 - 07:04 AM.

[ogm]

I want to know who took the other side of this bet and buy their stock

[humble1]

that is an important heads-up; thanks for posting it. normally i would say it obviates the probability of a sharp plunge. what really scares me is that we had the same kind of activity pre-9/11 and it was from europe. now, i don't believe that was a coincidence and i don't believe they could not find out the big players. our security is so much better now that i want to believe we are more alert and better prepared to prevent. that is all i have to say on the subject: i am only going from what i have read in this post and some recent statements by security officals. i would NEVER trade (am not trading and have not traded) on the possibility of anything like that. of course, they COULD be trading the same eclipse pattern i have posted here, as enhanced by the 1987 template. you would be surprised how these posts get around. i have posted it here and only here and had seen it nowhere before, but it has already appeared several other places. which i don't really like, since if i had wanted to post it elsewhere, i would have. but then, september and october ARE the weakest months and weakness INTO them, eclipse or no eclipse, would bring out folks who want to speculate or protect. i am just saying it is weird.

[Tor]

complacency sure reigns supreme....here anyway.

[ogm]

complacency sure reigns supreme....here anyway.

Have you looked at the polls ?

[humble1]

ogm: i can help you with that; that is very easy to do. just sell puts or go long stocks or futures.

[Tor]

complacency sure reigns supreme....here anyway.

Have you looked at the polls ?

who knows? NOT ME!

Edited by Tor, 28 August 2007 - 07:48 AM.

[zedor]

Looking at the details the pesky details, shows the date of the article to be 16 Aug or the day of the most recent low.


So whoever bought those puts lost a lot of money --- a cool 3 billion and those that sold it made that much.

I think in a 20 trillion dollar value (Europe and US together I apporximate) market a 4 billion dollar bet that could be offset by futures or a calendar spread or whatever is nothing more than that. Reading into it some calamity is far fetched. There was no calamity prior to many other market swoons including Japans 50 % drop.

Given the high VIX readings at that time such a short sale could be also not a market direction play but rather a play on a bet that VIX would come back to earth as it did. Sell fear premium is not a bad idea for nimble traders.

An anonymous investor

this phrase should be a tip off that this article on the 16 th was meant to rile the bears by some bull(s)

All option trade data and other securities as well are by their nature "anonymous". When I buy a put or call or stock or futures my name does not apear next to the ticker transaction or time and tape. So the use of "an anonymous" is just an emotive play to put some dark spin on this.

Edited by zedor, 28 August 2007 - 08:02 AM.

[redfoliage2]

Mystery trader bets market will crash by a third

Renée Schultes

16 Aug 2007
Carry trade unwinds as yen hits one-year high

An anonymous investor has placed a bet on an index of Europe's top 50 stocks falling by a third by the end of September, as world equity markets plunged for a third day and volatility hit a three-year high.

The mystery investor has bought put option contracts on the DJ Eurostoxx 50 index that will result in a profit if it plunges to 2,800 or below by the end of September. Based on the 2,800 strike price, the position covers a notional €6.9bn, and potentially even more using a market price of about 4,100 when the trades were done on Tuesday and Wednesday.

The identity of the investor is unknown but market sources speculated it was either a large hedge fund hedging itself against deepening losses, or a long-only fund manager pressing the panic button to protect its gains.

The investor has bought a total of 245,000 put options on the index. The September put option with a 2,800 strike was the most popular DJ Eurostoxx 50 contract yesterday, according to data from Bloomberg.

Volatility in European equity markets has risen sharply this week as investors cut back on the amount of risk they are taking. The VSTOXX index, which measures the volatility of the DJ Eurostoxx 50 index, hit 34 this morning, which is more than double its three-year average.

Similarly the volatility of the US stock market was trading at almost three times its three-year average, hitting 30 yesterday.

However, both indices continue to trade below their 2002 highs.

European stock markets were trading down almost 3% at by 13:00 GMT today, after large drops in Asia and Australia overnight. The Australian market fell 300 points at one stage when futures trading was suspended for over an hour and traders were forced to hedge positions by selling physical stocks rather than futures.

An analyst at Goldman Sachs JB Were in Australia wrote: "I think I shall remember this day as the day that I saw the market go to hell, look into the abyss - didn't like what it looked like and then came screaming back up as far away from there as it could get. ... It was a truly spooky day and I’ve seen a lot over the last 20 years but today will be one that anyone who saw it will never forget. But this is what market bottoms are made out of."

The rise in volatility and risk aversion has also contributed to a sharp appreciation in the Japanese yen, which has been used to finance the so-called carry trade, where investors borrow in a low-yielding currency to invest in one with a higher-yield.

Analysts' belief that the yen carry trade is set for a major unwinding has intensified today as the Japanese currency continued to rally in morning trade.

The yen strengthened today as it broke through several psychological barriers. The yen hit 113.60 against the dollar by 12:35 GMT, the first time in more than a year it has dropped below 114. The yen was substantially up against the dollar from yesterday, when it traded at above 116.

Simon Derrick, head of currency research at Bank of New York Mellon, said: "With any hope of even a brief bounce emerging in the yen crosses evaporating in the fierce glare of another horrible close in New York, it is clear that the vicious, self-reinforcing, downward spiral we were worrying about is already firmly established."

This article is dated as Aug 16, 2007. The position may have been closed.

Edited by redfoliage2, 28 August 2007 - 08:13 AM.