[HN Gopher] The Essex Boys: how nine traders hit a gusher with n...
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The Essex Boys: how nine traders hit a gusher with negative oil
Author : RyanShook
Score : 80 points
Date : 2020-12-17 23:42 UTC (1 days ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| bsanr2 wrote:
| >Now the authorities must decide whether anyone at Vega breached
| market rules by joining forces to push down prices--or if they
| simply pulled off one of the greatest trades in history.
|
| Couched in these terms, it's really difficult not to think of
| trading as a sort of game. What are these rules, why is breaking
| them a bad thing, who set them up, and why is foul play suspected
| and investigated with aplomb when relative small-timers make out
| like bandits but not when big establishment institutions drop the
| ball to the tune of "generalized economic ruin"?
| quickthrower2 wrote:
| Rules are there so you can trust the system enough. Imagine if
| there were no rules: your bank might steal your money, a
| company might lie on its financial reports so a shareholder can
| dump some stock etc. Then all trust is lost and every deal with
| every entity needs to be worked out from scratch. You'd do
| extensive DD to open a bank account or buy a stock. This would
| cripple the system.
| leetcrew wrote:
| the idea (or the lie, depending on your perspective) is that
| the market price converges to a fair valuation, based on the
| information available at the time. true or not, it is important
| that market participants mostly believe this, lest the whole
| thing unravel at once.
|
| I'm not sure exactly what these traders are suspected of doing,
| the article is rather scant on details.
| vmception wrote:
| I approach the whole market as a MMORPG, with very real
| consequences
|
| (Massive Multiplayer Online Role Playing Game)
|
| It is always surprising for me to discover that there are
| people that debate about that. Or more so comforting to
| understand my competition is not that competitive.
| qeternity wrote:
| Trading absolutely is a game, and the "score" so to speak of
| this game being "price" is an extremely important piece of
| information to society. Price contains all known data
| (according to EMH) and then is freely (or cheaply) observed by
| all participants. It's not a bad thing that it's a game, in
| fact most games are calculated risk, just like trading. But
| like other games, you need fair and consistent rules.
|
| Source: former hedge fund trader
| Isamu wrote:
| Negative Oil does sound more interesting than negative oil
| pricing, so kudos to the editor for keeping us clicking those
| links.
| jgilias wrote:
| Looking forward to the movie!
| dhsysusbsjsi wrote:
| This is like a short version of The Big Short.
| bryan0 wrote:
| The Short Big Short
| zhoujianfu wrote:
| The Short Short
| treis wrote:
| Very tired of these sorts of articles that bury the lede in a
| mountain of fluff. I don't care about the stereotype of someoen
| from Essex. I want to know if these people manipulated oil trades
| and, if so, how.
|
| Anyone have a TLDR?
| Dylan16807 wrote:
| Just about all of that text isn't fluff, it's _the point of the
| article_ , telling the stories of these particular people and
| giving a detailed background of the market.
|
| I'll happily tell you that there appears to be no evidence of
| manipulation, so you can avoid reading an article that doesn't
| interest you, but I don't think it's fair to call it a buried
| lede.
| crazyideaman wrote:
| A group of retail traders buy contracts requiring them to buy
| at settlement price. (TAS) They then sell contracts to get them
| to a flat position so they don't actually have to take physical
| stock.
|
| This part is very routine. The unusual thing is that the price
| actually went negative so when they "bought" to cover they were
| actually paid nearly $40. So they profited both off the short
| position and again to buy to cover.
| neonate wrote:
| https://archive.is/33zf6
| osamagirl69 wrote:
| Wild stuff! Hard to imagine being a day trader and taking
| $100,000,000 dollars home from a moonshot bet while sitting in
| front of your computer. I don't fully understand how the TAS
| agreement works, but it sounds like they started the day by
| essentially putting in $0 and a promise to pay up at the end of
| the day -- where they could have easily been out ~$10M each if
| the markets recovered.
|
| >If the group had made $7 million that day instead of almost $700
| million, they'd probably be celebrating. But the size of their
| winnings, coupled with their backgrounds--and political pressure
| to understand what happened--means that Vega has the attention of
| regulators.
|
| Indeed...
| Hokusai wrote:
| > taking $100,000,000 dollars home
|
| All this money allows this people to buy many things,
| properties, services... Do our society can afford for all that
| in exchange of some luck?
|
| There are limited resources and society have decided that these
| people deserve a big chunk of that resources.
|
| Weird.
| bsanr2 wrote:
| I don't see how it's different from what already exists. If
| you're questioning them, why not Gates, Bezos, [redacted],
| [unknown], etc.?
| retube wrote:
| whilst luck plays its part, this is the reward for taking
| risk (a lot of risk). and without the possibility of reward
| for risk taking, there'd be no incentive to invest in
| anything.
| WA wrote:
| Trading is a zero-sum game.
| kasey_junk wrote:
| This is only true if you assign no value to risk mitigation
| or liquidity.
| Hokusai wrote:
| > risk mitigation
|
| Is that still an argument after the housing collapse of
| 2008? Far from mitigating risk it seems that risk was
| increased.
| kasey_junk wrote:
| I'm sorry can you explain how you are connecting bespoke
| mortgage backed securities and their derivatives to
| commodities trading?
| bpodgursky wrote:
| This profit is a forcing function to punish producers and
| middlemen who didn't build enough oil storage infrastructure.
| morlockabove wrote:
| Deserve? No. Get? Yes.
|
| If I stumble across gold in the ground, quietly buy the land
| and start to mine it, I don't 'deserve' that gold. But I've
| got it, and the system of property rights is there to
| dissuade me from just taking it by force instead of buying
| the land first (or other people taking it from me once I've
| got it).
| Hokusai wrote:
| > But I've got it
|
| "In most countries of the world, all mineral resources
| belong to the government. This includes all valuable rocks,
| minerals, oil and gas found on or within the Earth.
| Organizations or individuals in those countries cannot
| legally extract and sell any mineral commodity without
| first obtaining an authorization from the government"
|
| In the USA is not exactly liked that but "Property rights
| and mineral rights were originally tied to the land. The
| owner owned both. However, mineral rights and property
| rights can be severed, meaning the owner can sell one and
| keep the other. So, the original owner of your land may
| have sold the property rights to one person and kept the
| mineral rights or sold it to another person. By the time
| you bought the land, the mineral rights may have been sold
| already."
|
| So you could be committing a crime by mining gold with only
| the property rights, you also need mining rights.
| vkou wrote:
| It can afford the existence of a monied class which
| collectively commands tens of trillions of dollars in wealth,
| so it can probably afford it.
|
| Whether or not we want to afford it is a different question.
| cma wrote:
| Hopefully at worst it is just something like instead of
| artists working on cinematography and graphic art for Coke
| commercials and advertisements to give people diabetes, they
| will be making artwork for these people's mansions that might
| not be enjoyed as widely as they could be in a more rational
| system but that at least won't give people diabetes.
| crazyideaman wrote:
| Last year Goldman Sachs made 18 billion dollars and were
| profitable 236/251 days. 41 of those days they made more than
| 100 million dollars. Institutional traders like this routinely
| manipulate prices to temporarily raise/lower prices on low
| volume to take out stop losses and so on. News is routinely put
| out at the top and bottom of markets that happens to provide
| liquidity for these institutions. Yet, no investigations...
| retube wrote:
| Goldman sachs employ 30,000 people across dozens of separate
| business units and have a balance sheet of nearly a trillion
| dollars. And a vast chunk of their income is net interest
| income and advisory fees. It's in no way comparable.
| crazyideaman wrote:
| 53% of their revenue is from sales and trading. I'm only
| saying is that if Goldman Sachs had done this short there
| would not have been any outrage, calls for investigation
| and so on. Institutions routinely pull off massive profits
| from retail traders. As soon as one day it reverses then
| there is all this faux outrage. lol
| retube wrote:
| That's not true at all. the big institutions are
| routinely investigated for this kind of stuff. Barclays
| and DB for example have had huge fines for various issues
| in the fx and interest rate markets.
|
| And besides, the majority (if not all, given Volcker
| restrictions) of sales and trading is from market making,
| rather than risk taking / directional punts on the
| markets.
| svpg wrote:
| Can't quite get my head around their strategy. Can someone
| clarify? My understanding is that the bought WTI in the TAS
| market and at the same time sold WTI to drive the price down
| (It's not clear when did they buy this WTI or if they maded a
| profit selling them or were just driving the price down). When
| the price hit -$37.63 at the end of the day the WTI they bought
| at the TAS market had to pay them, right? That were they made
| their profit?
| theginger wrote:
| I think the point is they buy them as TAS, then sell what
| they've bought before they've settled.
| crazyideaman wrote:
| The TAS contracts required them to buy at settlement price.
| They obviously did not want inventory so they sold an equal
| number of contracts. (Sell high, buy low). That much is a
| routine short scenario.
|
| The unusual part of this scenario is that contracts were
| expiring (it required someone to take actual inventory) so
| prices at settlement went negative. So when they "bought" to
| cover their shorts at settlement they were paid to do so.
| svpg wrote:
| Another question. Once the future expires they have to take
| in that oil physically. Did they do that and sell in the
| regular market?
| retube wrote:
| their view was the price was going to drop during the day. so
| they entered into contracts to buy oil at the end of the day,
| at whatever the prevailing price was. Now they are long oil.
| During the day they sell oil futures, flattening their
| position. Net at end of day, they're contracted to buy at some
| price, but contracted to sell at a bunch of higher prices.
| Hence in the money.
|
| My basic maths implies they sold - and bought - 10k lots, which
| is 10m barrels. So a huge position.
| kasey_junk wrote:
| "Hammering the close" is a daily occurrence in the commodities
| markets and has been for as long as they printed a closing price.
| Lots of market participants are pegged to the closing price so
| it's a very attractive target.
|
| The open price is similar and (at least on some symbols) based on
| a short term auction right before open. Anyone with a data feed
| sees crazy stuff during those 2 periods.
|
| Getting paid on both sides of your trade though is a special
| event for a trader.
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