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Did a Big Bet Help Trigger ‘Black Swan’ Stock Swoon?

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SCOTT PATTERSON And TOM LAURICELLA
Wall Street Journal
Tuesday, May 11, 2010

Shortly after 2:15 p.m. Eastern time last Thursday, hedge fund Universa Investments LP placed a big bet in the Chicago options trading pits that stocks would continue their sharp declines.

On any other day, this $7.5 million trade for 50,000 options contracts might have briefly hurt stock prices, though not caused much of a ripple. But coming on a day when all varieties of financial markets were deeply unsettled, the trade may have played a key role in the stock-market collapse just 20 minutes later.

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Did a Big Bet Help Trigger Black Swan Stock Swoon?  140410banner4

In the disarray, some huge superfast-trading hedge funds that now provide much of the liquidity for the stock market pulled to the sidelines. The working theory among traders and others involved in the exchange meltdown is that the “Black Swan”-linked fund may have contributed to a “Black Swan” moment, a rare, unforeseen event that can have devastating consequences.

“Universa alone couldn’t have caused the meltdown,” said Mark Spitznagel, Universa’s founder. “We had reached a critical point in the market, and it was poised to collapse.” Barclays Capital declined to comment.

Full story here.

This article was posted: Tuesday, May 11, 2010 at 3:58 am





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