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It's not even known that Melvin had an unlimited-risk short position. All they disclosed was that they bought $55 million in puts, so for all we know they might
by MichaelBurge 6y ago
It's not even known that Melvin had an unlimited-risk short position. All they disclosed was that they bought $55 million in puts, so for all we know they might've laughed off a 1% loss and are completely unaffected.
Not sure about exact pricing, but maybe they even profited: The volatility on puts has risen to insane levels.
- overcast 6y agoWere they actually long PUTs? There big problem was their short stock position. The latter gets crazy quickly, as we've seen.
- lettergram 6y agoThey took a $2.7B loan from Citadel early last week (Tuesday). They appeared exposed.
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- zephyr-wind 6y agoIf it were only $55M in puts, they would not have needed the bailout. What people in the know think is that they sold calls to finance the puts to achieve a net-zero position... which would be an unlimited-risk synthetic short position.
- MichaelBurge 6y agoHow do we know it was a bailout? Maybe they just raised extra money to take advantage of a volatile market.
- zephyr-wind 6y agoWord on the street has that Melvin is down 80% YTD, some other L/S funds 20-30%.
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- zephyr-wind 6y agoOf course, we don't know for sure. But it's strange to sell off future revenue shares for capital today when you can simply double-down using leverage.. unless they ran into their margin limit.
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