In autumn, 1987 and Andrew Krieger, a trader at Bankers Trust, is
watching the New Zealand dollar (NZD) in the aftermath of the 1987 stock
market crash. Currencies such as the NZD (also called the “Kiwi”)
are being bid up by traders fearful of holding US dollars. This
leads to a short-term overvaluation of many currencies relative to the
USD, but Krieger focused on the Kiwi.
New Zealand has a fairly small economy, and using options Krieger is able to ultimately short the entire money supply of New Zealand (according his book The Money Bazaar). This would have been impossible if he only used the cash market.
Other traders and even the New Zealand government get involved. The government asks Krieger to stop the raid, but ultimately the market agrees with Krieger. The Kiwi sells-off 5% in a single day, with intra-day fluctuations up to 10% according to some sources. Much of the decline is pinned on Krieger selling massive amounts of Kiwi dollars, yet it is also other traders acting on the information which ultimately leads to Krieger being exit his positions with a profit.
The estimated profit to Bankers Trust was $300 million. Of which Krieger got a $3 million bonus. This “tiny” bonus on such a well executed trade disgusted Krieger and ultimately he left Bankers Trust, going to work for George Soros in 1988.
In 1988 Bankers Trust admitted that profits from their options trading activity was overstated by $80 million in Q4 of 1987. Therefore the profits made specifically by Krieger are drawn into question, as the many of the options that were revalued involved Kiwi dollars. Such options were fairly new, and it is possible that Krieger was much of the market in such instruments at the time, making the options hard to value.
Either way, Krieger’s position is estimated to have been $700 million to $1 billion, with profits in the range of $220 (lowest possible gain) to $300 million.
New Zealand has a fairly small economy, and using options Krieger is able to ultimately short the entire money supply of New Zealand (according his book The Money Bazaar). This would have been impossible if he only used the cash market.
Other traders and even the New Zealand government get involved. The government asks Krieger to stop the raid, but ultimately the market agrees with Krieger. The Kiwi sells-off 5% in a single day, with intra-day fluctuations up to 10% according to some sources. Much of the decline is pinned on Krieger selling massive amounts of Kiwi dollars, yet it is also other traders acting on the information which ultimately leads to Krieger being exit his positions with a profit.
The estimated profit to Bankers Trust was $300 million. Of which Krieger got a $3 million bonus. This “tiny” bonus on such a well executed trade disgusted Krieger and ultimately he left Bankers Trust, going to work for George Soros in 1988.
In 1988 Bankers Trust admitted that profits from their options trading activity was overstated by $80 million in Q4 of 1987. Therefore the profits made specifically by Krieger are drawn into question, as the many of the options that were revalued involved Kiwi dollars. Such options were fairly new, and it is possible that Krieger was much of the market in such instruments at the time, making the options hard to value.
Either way, Krieger’s position is estimated to have been $700 million to $1 billion, with profits in the range of $220 (lowest possible gain) to $300 million.
No comments:
Post a Comment