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Mystery Trader places $4.5 B Bet Market will crash by 9/21
Financial News | 27 Aug 2007 | NEW
Mystery trader bets market will crash by a third
The Fed: Something big is going to happen
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August 26, 2007
$4.5 billion options bet on catastrophe within four weeks
Anybody have a clue as to what these 'investors' are expecting?
The two sales are being referred to by market traders as "bin Laden trades" because only an event on the scale of 9-11 could make these short-sell options valuable.
There are 65,000 contracts @ $750.00 for the SPX 700 calls for open interest. That controls 6.5 million shares at $750 = $4.5 Billion. Not a single trade. But quite a bit of $$ on a contract that is 700 points away from current value. No one would buy that deep "in the money" calls. No reason to. So if they were sold looks like someone betting on massive dislocation. Lots of very strange option activity that I haven't seen before.
The entity or individual offering these sales can only make money if the market drops 30%-50% within the next four weeks. If the market does not drop, the entity or individual involved stands to lose over $1 billion just for engaging in these contracts!
Clearly, someone knows something big is going to happen BEFORE the options expire on Sept. 21.
THEORIES:
The following theories are being discussed widely within the stock and options markets today regarding the enormous and very unusual activity reported above and two stories below. Those theories are:
1) A massive terrorist attack is going to take place before Sept. 21 to tank the markets, OR;
2) China, reeling over losing $10 Billion in bad loans to the sub-prime mortgage collapse presently taking place, is going to dump US currency and tank all of Capitalism with a Communist financial revolution. Either scenario is bad and the clock is ticking. The drop-dead date of these contracts is September 21. Whatever is going to happen MUST take place between now and then or the folks involved in these contracts will lose over $1 billion for having engaged in this activity.
"$1.78 Billion Bet that Stock Markets will crash by third week in September Anonymous Stock Trader Sells 10K Contracts on EVERY S&P/Y "Strike" Shorts Stocks "in the money" effectively selling all his SPY holdings for cash up front without pressuring the market downward.
This is an enormous and dangerous stock option activity. If it goes right, the guy makes about $2 Billion. If he's wrong, his out of pocket costs for buying these options will exceed $700 Million!!! The entity who sold these contracts can only make money if the stock market totally crashes by the third week in September.
Bear in mind that the last time anyone conducted such large and unusual stock option trades (like this one) was in the weeks before the attacks of September 11.
Back then, they bought huge numbers of PUTS on airline stocks in the same airlines whose planes were involved in the September 11 attacks.
Despite knowing who made these trades, the Securities and Exchange Commission NEVER revealed who made the unusual trades and no one was ever publicly identified as being responsible for the trades which made upwards of $50 million when the attacks happened.
The fact that this latest activity by a single entity gambles on a complete collapse of the entire market by the third week in September, seems to indicate someone knows something really huge is in the works and they intend to profit almost $2 Billion within the next four weeks from whatever happens! This is really worrisome."Poster comment: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.
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Traders miss out on dollar slide 30 Nov 2006
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."
Posted 08/27/2007 09:08:47 pm CDT by SMOKESCREEN
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