small trader gets wiped out

[LeeD]

Quote from Shagi:

I don't agree with the statement that he held $850million worth of Gold with $10million margin.

If he held calendar spreads ( short & long various maturities) then his overall net position was way less than $850million.

Example - If you are Long February Gold 2 Contracts and Short April Gold 3 contracts whats your net position?

I can't say better than Elitist Trader who posted a few minutes faster than me:

Quote from Elitist Trader:

What a shit story, dont these reporters know anything about spread trading.

... and yes, it would be $850 mln position (in gold spread, not in gold).

 

[tmarket]

Quote from LeeD:

Shagi. perhaps the fund held lots of calendar spreads, not just outright futures.

BTW, Daniel Shak, the fund manager in the center of the story, is a big-time "semi pro" poker player. Just a few days ago he won $1.08m in Aussie Millions Poker tournament.

Mrs. & Mr. Shak?

 

[Shagi]

Quote from LeeD:


... and yes, it would be $850 mln position (in gold spread, not in gold).

BUT the statement says this quote - Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production.- End quote

He is saying the net value of the position was same as South Africa's annual Gold Production - That means Physical Gold Value not Spread Position Value.

If you held Short Feb Gold 3 contracts and Long April Gold 3 contracts and based on $1316/ounce would you say you are holding $789 600 worth of Gold?

 

[dumb_mother]

they are counting the absolute value of each contract- i agree with you it is a terrible mistake, but then again who expects anything smart of journalists or politicians?

 

[tmarket]

Quote from dumb_mother:

they are counting the absolute value of each contract- i agree with you it is a terrible mistake, but then again who expects anything smart of journalists or politicians?

It is the notional value that grabs headlines which the shorts didn't seem to mind when it was applied to the housing market, such as "By the end of 2007, the CDS market had a notional value of $62.2 trillion.". Often, they just leave out the "notional" qualification because the public doesn't understand what it means anyway.

 

[Arthur Deco]

Quote from jjf:

I see you were late to the party Arturo.
Why oh why did you not enter at 35 bucks

Don't make fun of an old man. I DID get in at $35 with some pre-'30's $20 gold pieces. But I went belly-up in the '80's and had to sell it all just to eat.

 

[scriabinop23]

In fact, through the spreads, he wasn't long or short gold, but was long or short his perceived mispricing of carry/lease/interest rates between the months.

 

[billyjoerob]

This sounds to me like an example of the old "how do you make a small fortune?" joke. I have trouble believing that somebody who could turn $10mm into $3mm with one massive trade could have made that $10mm himself.

 

[Jackshark]

How did he make his money? Obviously not in Poker or in the markets--- $10 mill wont even pay lunch money in a hedge fund. 7.5 mil apt? obviously, this money came from somewhere other than the markets.

 

[stock777]

Quote from Arthur Deco:

Don't make fun of an old man. I DID get in at $35 with some pre-'30's $20 gold pieces. But I went belly-up in the '80's and had to sell it all just to eat.

When the shit hits the fan you'll be eating the gold, since no one will care about it at that point.