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> What I don't understand is why the sudden move today? Did the longs think they had a place to put the oil on Friday but found out over the weekend they had n
by lordnacho 7y ago
> What I don't understand is why the sudden move today? Did the longs think they had a place to put the oil on Friday but found out over the weekend they had no place to put it? Just seems like you would know what to do with the oil on Friday. Note this is not a rhetorical question, I would sincerely like an answer.
Guys like myself, an ex fund manager, could be tourists in the oil market. I know I was, speculating occasionally on oil without knowing a whole lot about the details. Plenty of macro guys are similar, they bet on the large movements as the opportunites present themselves and don't worry about the details.
So what has probably happened is some of these tourists have had a few contracts left over that they forgot about or didn't discover in their position keeping until their prime brokers phoned them, and they had to dump into a market under very special conditions. Hopefully not very many contracts.
In normal times if you screwed up and had to do delivery, it stil wouldn't be a big problem, because the storage is available and you essentially just buy it (by trading with a guy who actually knows how to organize it), costing relatively little.
- 0x8BADF00D 7y agoA really risky (but I think worth the risk) bet is to buy the front and sell the back. You will receive a huge credit, and as long as you close out the back leg below what you sold for, you’re in the clear.
- lordnacho 7y agoThis isn't possible, except for people who can deal with the physical logistics. If you buy the front, you need to put the stuff somewhere for a month. Chances are the people who got stuck selling at negative prices were actually doing just what you describe, they just weren't planning on the spread blowing out from physical issues.
- 0x8BADF00D 7y agoI don’t see supercontango lasting forever. At some point oil demand will rise. Even if it’s a small rise. And you typically should close out combination orders well before expiration.
- cascom 7y agoHow do you not get eaten alive by the negative roll yield (super contango) if you don’t have access to storage?
- hermitdev 7y agoThis reminds me of Brian Hunter [0] of Amaranth fame. He was on the wrong side of a huge (multi billion USD) long trade on Natural Gas. When faced with losing it all, he doubled down. Blew up Amaranth. $9B USD hedge fund blew up basically overnight. Margin calls, etc, etc. Disclaimer: I worked for the hedge fund at the time that bought Amaranth's holdings for pennies on the dollar. Was supposed to be a joint buyout with JP Morgan Chase, but Chase couldn't calculate the risk in time before closing and left us with all of the eggs in the basket. We ended up making a killing on the deal as we had the assets to weather the margin calls. I still can't believe anyone gave B.H. any money to trade with after that, but someone did... [0] https://en.wikipedia.org/wiki/Brian_Hunter_(trader) https://en.wikipedia.org/wiki/Brian_Hunter_(trader)
- loa_in_ 7y agoThat man is one of a very small group according to this list: https://en.wikipedia.org/wiki/Category:Rogue_traders https://en.wikipedia.org/wiki/Category:Rogue_traders
- jjallen 7y agoArguably he wasn't rogue, judging from John Arnold's account of the situation[0]. He just made way to big of a trade. Think his account is somewhere between 10-20 minutes in this video 0. https://www.youtube.com/watch?time_continue=68&v=G6zFBzadTw0&feature=emb_logo https://www.youtube.com/watch?time_continue=68&v=G6zFBzadTw0...
- MR4D 7y agoOne thing is clear to me - somebody is getting fired this week. Not sure if it's a hedge fund or producer, or a trader or a team, but someone is getting fired.
- baggy_trough 7y agoEveryone is getting fired.