Mystery trader bets 1 billion dollars market will crash

[Fyrie]

So an anonymous trader bets more than one billion dollars that the stock market will crash by Sept. 21.

http://www.freemarketnews.com/WorldNews.asp?nid=47938

http://www.prisonplanet.com/articles/au ... _crash.htm

[Cjskater]

AIRSHIPS WILL CRASH INTO THE PIT

Really though, that does seem odd.

[Zigma]

no

If it crashes, I'm fucked so I really doubt it.

[evilbau]

i was reading up on this and i'm super tired (almost 4 am) so i'm going to stop but this seems like a reasonable explanation:

I would also point out that the margin on this trade would be some fraction of the 30 point difference - for the sake of argument figure 30%.

If so then margin = 30 points * 100 shares of SPY/option * 30 % * 60,000 spreads = $54 million

Potential max profit would be $180 million (-transaction costs/slippage/etc).

Maximum potential loss is transaction costs and slippage. What a neat bet - can't lose actually.

Furthermore, consider this : maybe this guy is like the rest of us (only with a lot more money) and he is going to roll this spread over each month all thru this fall until it POPS. That's what I would do. What's the downside ? Transaction costs + slippage each month on 60,000 spreads and you tie up some funds in margin. Whats the upside ? $180 million.

No brainer.

from http://www.tickerforum.org/cgi-ticker/a ... 69&page=11

I only got to page 11 of 17 but i'm done for the night. Its a forum that tracks trades. They have seen the records of the trades and love to go over the details. Comparatively, I'm a financial noob so I quoted something that made sense to me as a likely strategy behind the options. I think the fear-mongers took the info and ran with it. Hal Turner is a source ("one of the media outlets"). He pretty much sells fear and hatred. Maybe there is something more sinister in the rest of the pages, i'm sure i'll read it tomorrow. Until then, we can all cry chicken little or try to find the truth.

edit: the chinese hypothesis was interesting if you read that thread, but isn't likely for reasons also explained in that thread

edit2: this is a pretty good possible reason as well

There is another possibility - someone needs cash (has a MAJOR liquidity problem) and DID write them as credit spreads - with zero expectation of exercise, basically using the options MM guys as a bank.

That's wildly expensive financing due to the clearing costs BUT if you can't get access to money anywhere else, are trying to prevent an explosion in your firm, and of course YOU employ the margin clerk who would otherwise go apeshit.......

[RustyMetal]

I'm not too up on the stock market but, I believe it would be the US dollar crashing as well. Were in this position that all these banks in America are foreclosing because they lent our too much bad credit, and after enough, the bank goes under. Well all the banks are hurting, so they ask the FED to lower the interest rate; thus allowing the banks to stay afloat and lend more money; but then our overseas bank rollers will want to pull out of US investments (china). If they raise the interest rate on the other hand, more banks will close, but china wouldn't be mad and our dollar would go up. If you remember to about a week or two ago they lowered it, half a %.

I mean honestly our dollar is guaranteed to crash within the next 10 years. It's just can our government spend enough money to keep it from crashing today?
Money as Debt - http://video.google.com/videoplay?docid ... 2583451279

[Anyway]

jews did 9/11

[Ace-o-fire]

Buy gold and diamonds. Somethign to do with gold being a precious metal and how it will stay it's value in times of economic disasters.

i love my economics teacher.

[Boyiee]

sweet, economy drop = more money for me and my brother.

[Khamsin]

So, who exactly did he make the bet with, and who is giving him 1 billion dollars if he wins the bet? And who is he paying 1 billion dollars if he loses?

Well, guess we should all sell our stocks just in case he's right!

[Ace-o-fire]

that causes teh market crash.


tada!

he wants you to do that!

[evilbau]

So, who exactly did he make the bet with, and who is giving him 1 billion dollars if he wins the bet? And who is he paying 1 billion dollars if he loses?

Well, guess we should all sell our stocks just in case he's right!

The market gives him the money if he wins the bet, and its a LOT more than 1 billion if he is right. The 'mystery trader' (protip: everyone who isn't a public company is a 'mystery trader' in the eyes of the market, identity is not revealed in reporting trades) has put in that money but it is leveraged so if he's right he stands to make much more.

From this wiki: http://en.wikipedia.org/wiki/Option_%28finance%29

Short Call

A trader who believes that a stock price will decrease can short sell the stock or instead sell a call. Both tactics are generally considered inappropriate for small investors. The trader selling a call has an obligation to sell the stock to the call buyer at the buyer's option. If the stock price decreases, the short call position will make a profit in the amount of the premium. If the stock price increases over the exercise price by more than the amount of the premium, the short will lose money, with the potential loss unlimited.

[finale23]

not if the fed can help it. the fed already plumped 38 billion dollars last month (2 billion dollars in one day, a couple days ago) in the market, so did other countries around the world. it doesn't do anyone any good that the US market goes down burning. the fed also implemented other remedial measures, such as lowering fed funds rates to release liquidity pressure on banks, etc. uneducated investors believing shit like this is what driving the stock market down, it's pretty much a self-fulfilling prophecy. everyone panics leads to bank run, or in this case, market crash.

[Exoduso]

Obviously he can see the future..

[finale23]

another baseless rumor has been going around is that two largest banks, citigroup and bank of america, are in trouble. they could use some liquidity, but they aren't in trouble in a sense that they are losing money. hell, bank of america made 21 billion in net income last year and just invested 2 billions in citywide, the biggest mortgage lender in the US, who is experiencing some serious liquidity problem duo to increase in mortgage default rate. they are no where near the "trouble" that rumor wants us to believe.

[evilbau]

not if the fed can help it. the fed already plumped 38 billion dollars last month (2 billion dollars in one day, a couple days ago) in the market, so did other countries around the world. it doesn't do anyone any good that the US market goes down burning. the fed also implemented other remedial measures, such as lowering fed funds rates to release liquidity pressure on banks, etc. uneducated investors believing shit like this is what driving the stock market down, it's pretty much a self-fulfilling prophecy. everyone panics leads to bank run, or in this case, market crash.

you got it

[evilbau]

In related news the Dow dropped almost 300 today; a lot of people lost a lot of money (on paper), myself included.