oil losses (and a need for stops;) )

[jamescummins]

Ft has an article on Sem Group filing for bankruptcy, with 3.2 billion losses...

The thing that got me is they are describing them as a hedge loss!!! What sort of hedge was that???? They trade physicals, and sold the market hideously short in a ridiculously bullish year for oil. Fair enough if it is a hedge, and you make a few billion of the physical, but I suspect it was a touch more speculative

They are declaring a 2.4 billion loss on their hedges - someone tell me how they managed that if it is not a purely speculative bet on direction...

They should have had some stops in place - even if they were super-spanish-wide stops, might have been an idea! Although, putting on positions of that size, you cant have a viable stop. Trying to buy out of billions of dollars worth of shorts (mainly on exchange, not even OTC) is going to move the market dramatically against you. I think they were just a touch over exposed!

What sort of governance is in place at the firm whereby they can place a directional bet so large, that if it goes against them, the firm is bust?

 

[gooseman]

might not have been a directional loss. if they were vol trading they could have been completely delta neutral but exposed to any vol moves.

but yes, i agree that the risk dept need to take a long, hard look at their models!!!

 

[jamescummins]

True true, but I cant see how this can be a vol trade - no mention of options or exotic positions of any sort, and all this was done on exchange... And if they are delta neutral, they must have had the most ridiculously huge positions on to require billions of dollars worth of forward hedges wouldnt they?

But yes, either way, they made a bit of a booboo.

 

[gooseman]

can do options on the exchange.

yes, they must have had a silly position on somewhere unless they've just been leaking from every orifice

 

[jamescummins]

can do options on the exchange.


Sorry, just meant that they would struggle to put that much volume through the exchange in options wouldnt they? Inside a year, I would have though they would be smashing the exchange pos. limits... Maybe not. An interesting question in fact! How big a position could you get on an exchange in theory, without taking a directional view? Or even with a view, just in options? I know within the markets I have worked in, it would not be that big! Having said that Metallgeschaft and the Chinese seem to have lost more than should be possible before

 

[gooseman]

i'm not sure but the vol moves have been quite sharp (obviously) of late. that is an interesting question-i shall look into it. skews have been moving quite heavily too.

either way you look at it it's a risk disaster!!

 

[new_trader]

If Spanish89 is permanently banned I get the feeling he has left a legacy that will live on. There isn't a doubt in my mind that there will soon be a thread in the FAQ forum dedicated to answering: "What is a Spanish Stop?"

 

[wasp]

............: "What is a Spanish Stop?"

Parada.

 

[Tenapenny]

"Spanish stop". Surely this classic should be added to Traderpedia!lol:

 

[gooseman]

less so on screens but if you're on the floor with not much fungibility then you know either someone has a position or their client does. open interst tells all!

 

[ivantchourilov]

you have to remember that with such massive positions the slippage on the stop would be so massive there probably would be no point in having it in the first place.

im getting the feeling that the expression "spanish stop" will hit all the new uni textbooks... time shall tell...

 

[gooseman]

you simply couldn't have a stop in leesons size.

 

[gooseman]

plus he sold puts to finance his margin calls-had volatility risk on top of everything else. interestinlgy rogue trader was on tv last night. good film. the book is an essential read i think.