Bill Holter Blog | Zero times anything is still ZERO! | Talkmarkets
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Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid ... more

Zero times anything is still ZERO!

Date: Wednesday, July 26, 2017 3:45 PM EDT

I had to chuckle after getting caught up in the ZeroHedge click bait headline A Mystery Investor Just Made A $262 Million Bet That The Stock Market Will Crash By October. First we should look at the article itself and then analyze the stupidity prevailing even among large and supposedly "wise" money managers.

As for the article, it was penned by Michael Snyder who has done some very good work in the past as he did with the leg work for this one. The problem(s) I see are that first, the mystery investor did not make a $262 million bet. This is the maximum amount he might be able to make between now and October.The original "investment" is far less than this and would normally be considered the amount of the "bet" if this was the amount they could possibly lose.

But herein lies the problem, the "bet" has literally an unlimited loss potential because in a complete blowout market, this trader is essentially short 262,000 VIX Oct. 25 call contracts.Never mind all the other bells and whistles in this trade, should the market crash and fear run unbridled, the net/net is this uncovered short call position of 262,000 contracts.So, the title is misleading in the first place because the original bet was only a small fraction of $262 million but the potential loss could certainly be in the multiple $billions ... not like any lottery ticket I have ever seen or would even touch!

Taking this the extra yard, let's talk about "what" this or any trader will "win" should they be that fortunate.First, you will notice I wrote "should they be that fortunate"... which means someone else (or collective someone elses) will be unfortunate enough to be standing atop an equal sized loss.The obvious question is whether they will have the ability to payout on the "lotto ticket"?From a systemic standpoint, I absolutely 100% guarantee in a free market not backstopped by central banks, another 2008 experience cannot be settled.2008 could not be settled upon and thus the reason the Fed secretly lent out $16 trillion across the globe, settlement HAD TO OCCUR or the jig was up.The number this time around will have to be far larger and probably many multiples.

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