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London traders hit $500M jackpot when oil went negative

bloomberg.com

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Re: London traders hit $500M jackpot when oil went negative

#51

Post by hogFeast »

rsuelzer wrote: post #49
hogFeast wrote: post #47

Earlier quoted context omitted.

Er no. It is. The losers were Chinese banks/investors. Chinese banks created a ton of financial products linked to oil futures, they didn't know what they were doing and left it to the last minute to roll (afaik, none of the products in the US blew up).

USO blew up. The held 25% of all the negatively priced contracts at close. The crux of this story is that investors piling into these ETFs created a massive sell side pressure at the close which this hedge fund found a way to arbitrage.

They didn't blow up. Blow up means lose all the money. Afaik, USO weren't trying to roll their whole book that day (the exchange put out a notice a month or so before telling people to roll...as the article says). The Chinese banks were literally attempting to roll the whole fund and investors lost 100% (afaik, they lost more than 100%...the sum I have seen is a loss of 200%+).

Re: London traders hit $500M jackpot when oil went negative

#52

Post by cvhashim »

bthallplz wrote: post #42
kaycebasques wrote: post #8

There's an episode of MacroVoices that was recorded in real-time as prices were going negative. You can hear the pain in Erik's voice as he realizes how much profit he missed out on.

Could someone please provide a link to this?

https://www.youtube.com/watch?v=d533KZsnVvY

Re: London traders hit $500M jackpot when oil went negative

#55

Post by bawolff »

Ecco wrote: post #18
nulptr wrote: post #15

Earlier quoted context omitted.

If you accuse someone of theft, shouldn't the burden of proof be on you? Also, if two people make a bet, and one person wins, is that theft?

Didn’t accuse anyone though :)

You accused people who make transactions that don't create value of theft

Re: London traders hit $500M jackpot when oil went negative

#56

Post by bawolff »

Ecco wrote: post #12
Ecco wrote: post #7

I really wonder if those guys really created $500M worth of “value” for the rest of the world. Because if they didn’t, it means it’s theft...

I’m fine with the downvotes - I understand it can be a controversial opinion. But I’d love to get some more detailed feedback!

You redefined a word with an accepted meaning (theft) to mean something different than the generally accepted definition - e.g. what you would see in the dictionary.

That in itself is ok, but you need a compelling argument as to why the two ideas of theft are equivalent or at least similar. And you haven't provided any argument let alone a compelling one.

The point of an internet forum is to debate ideas on their merits (in the best case). Asserting something not generally accepted, without argument, tends to annoy people because you're not even attempting to convince people of your idea's merits, which is the entire point of the game.

Its not that you're wrong, its that you didn't try to convince people you are right.

Re: London traders hit $500M jackpot when oil went negative

#57

Post by lmm »

Ecco wrote: post #16
throwaway1777 wrote: post #13

Earlier quoted context omitted.

Derivative trading is usually zero sum. There is a loser for every winner. I don’t understand in what world buying and selling oil on an open market could be considered theft. Everyone knows the rules of the game.

Well, let’s consider a simplistic example: an obscure currency, let’s call it FAKE, that can be traded for USD. That currency is only used by people in a small island, and that island only exports clamshells and imports Big Macs. In this scenario, and unless I’m mistaken, the FAKE/USD rate will vary depending on: - how much clamshell those people can export and how much US people value them - how much BigMacs those g…

It's not theft, it's honest trading. Traders buy things from willing sellers and sell to willing buyers, in financial products as in any other market.

There are two ways to make money as a pure market player: connecting buyers and sellers who wouldn't trade directly (and taking your cut) aka arbitrage, or getting paid to take on risk. Maybe the trader notices that people on the far side of the island are hungry but can't get a big mac without a long walk, so he buys as many as he can carry, walks over to the other side of the island, and sells them for a bit more than they'd cost on the dockside - that's the first kind of trading. Maybe a clamshell farmer wants to make sure they can afford enough big macs over the next year. They might agree to sell their next year's clamshell harvest at a fixed price (that's lower than the average), or buy their big macs for the next year at a fixed price (that's higher than the average), or both; the farmer loses value on average, but they offloaded their risk, while the trader makes money on average but has to carefully manage their risk.

The third thing is to actually take an active position in the market, if you can predict what's coming. E.g. if you realise the clamshell harvest will be big this year, maybe you sell a bunch of clamshells short. That should send a useful signal to all the farmers, and it means you make money if you predicted right.

Re: London traders hit $500M jackpot when oil went negative

#58

Post by gph »

gruez wrote: post #41
Ecco wrote: post #32

Earlier quoted context omitted.

Well, one could argue that they are just smarter than other people and manage to find market opportunities. Good for them I guess. But technically since it’s mostly a zero-sum game would it be wrong to consider that they use their smarts to deprive other people of value?

Do you really need me to explain why fraud is wrong? Fraud is wrong because you're betraying someone's trust. It's bad for society because it adds friction to business dealings. When you can't trust your counterparty, you have to expend tons of money doing due diligence. This is true regardless if you're smart or not. Being the smartest person in the world isn't going to help you if you're being deceived (assuming yo…

*Omniscient

Though I guess it might be hard to deceive an entity that is literally everywhere.

Re: London traders hit $500M jackpot when oil went negative

#59

Post by justinzollars »

dmarlow wrote: post #3

I think most people saw the opportunity, but just didn't know how to properly capitalize on it. At least that's where I was. I wasn't going to take delivery of any oil, that's for sure. At least nothing that stood to make anything significant from. Then, there was also the whole contango thing too.

There was a risk you would have to take physical delivery.
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