Anonymous Trader That Can Gain $175 Million From S&P 500 Bet Was Not “Doing a Buffett”
Published The Crypto Report Team Warren Buffet on a Cherry Coke. AFP photo. Greg Baker.
Was the anonymous trader who “caused a stir” in the U.S. equity options market on Monday with a massive bet–– Doing a Buffett?” Saqib Iqbal Ahmed asks at Reuters Business News, pointing out:
‘The trader sold 19,000 put options on the S&P 500 Index.
SPX obligating him or her to buy the market benchmark at 2,100 on Dec. 18, 2020, data from New York-based options analytics firm Trade alert showed.
As long as the index doesn’t drop more than 22 percent from its current level of 2,582 by that date, the bet will earn the trader roughly $175 million in premiums.’ The Put Option Simplified
The buyer of a put option has purchased the option, but not the obligation, to sell a security at a specified price by a specified deadline.
The seller of a put option has obligated themselves to buy the security from the owner of the put option at the agreed to price by the agreed deadline.
So the buyer is betting the security will depreciate and they will be able to buy it at the lower price and sell it to the issuer of the put option at a price they are obligated to buy it for to make a profit.
On the other hand, the seller of the put option is betting the security will appreciate in value and they will hang on to their profits from selling the options. In this case, as much as $175 million.
Monday’s Mystery Trader Was Not Investing Like The Oracle of Omaha, Mr. Warren Buffett
The Reuters article suggests that the confidence in U.
S. equities shown by Monday’s mystery trader is something akin to billions of dollars worth of similar contracts sold by Warren Buffett’s Berkshire Hathaway company from 2004 – 2008:
‘Buffett’s Berkshire Hathaway (BRKa.N) sold billions of dollars in stock index options between 2004 and 2008, betting that markets would rise over the next 15 to 20 years. Although the trades were made anonymously, they were eventually disclosed in regulatory filings.
Berkshire has taken in more than $4 billion in premiums on the options. The holding company has other contracts that have not expired, including a final tranche that will settle in 2026.
While Monday’s sale was nowhere near as large as Buffett’s, the trader could still lose more than half a billion dollars if stocks turn sour over the next couple of years.’ Buffett Is More Cautious Than This Warren Buffet.
By Reuters/Carlos Barria.
But it’s not the fact that the massive sale of put options Monday wasn’t as large as Buffet’s contracts over a period of four years that makes it fundamentally different from Buffett’s investing strategy, it’s the fact that the seller has bet on market conditions less than two years from now, during an especially turbulent and chaotic time with high market volatility and big price swings .
While both bets are optimistic and do have that in common, Buffett’s bet stands in stark contrast to Monday’s seller of put options, because he was making a far more conservative bet, that markets would appreciate in value over 15 to 20 years.
And that’s not really so much a bet as a relatively safe assumption about the future of U.S. equities based on their past performance over various 15 to 20 year periods.
Betting on the price of stocks in two years is a lot more of a bet and a riskier speculation to make because the speculator doesn’t have the benefit of time to dampen out and mitigate losses to noise. They are also taking their chances on the currently inscrutable humor of the U.
S. electorate, which will have concluded the 2020 U.S. elections a month before the options expire.
The seller is betting the markets will be happy about what the electorate has wrought at the time the options expire. It is anybody’s guess as to whether that will be the case. What is most interesting to me about this story is how a trader was able to cause a stir not even by being optimistic, but by being a little less gloomy (‘As long as the index doesn’t drop more than 22 percent from its current level…’) than this gloomy, gloomy market for U.S.
stocks. Like what you read? Give us one like or share it to your friends You have reacted on “Anonymous Trader That Can Gain $175 Million Fro…” A few seconds ago Related Post Your email address will not be published. Required fields are marked * Comment Ethereum Clients Release New Software In Wake of Hard Fork Delay
Published The Crypto Report Team
Major ethereum clients, including Go-Ethereum (Geth) and Parity, have released software updates following an earlier decision to delay the planned system-wide upgrade dubbed Constantinople.
The upgrade was postponed Tuesday during a developers call, a move that came after blockchain audit firm Chain Security discovered a security vulnerability in Ethereum Improvement Proposal (EIP) 1283, one of the planned changes included in Constantinople.
If exploited, the bug would have allowed for “reentrance attacks,” allowing malicious actors to withdraw funds from the same source multiple times.
A new activation block for the upgrade will be decided during another call later this week.
In order to prevent the fork from happening – given that some of the software clients on the network had already been updated ahead of the fork – developers of the major ethereum implementations moved to publish new versions.
Geth released an emergency hotfix (version 1.8.21) designed to delay the upgrade , though developer Péter Szilágyi noted that users who do not wish to upgrade to the new version of the client can also downgrade their existing clients to version 1.8.
19 or continue running the current version (1.8.20) with an override.
Parity clients can similarly either upgrade their existing clients to 2.
2.7 (the stable release) or 2.3.0 (a beta release) or otherwise downgrade to 2.2.4 (beta).
Parity Technologies head of security Kirill Pimenov, speaking in an ethereum core developers chat on Gitter , said he recommended users upgrade to the new release, rather than downgrade to an older version, explaining:
“I want to restate — downgrading Parity to pre-Constantinople versions is a bad idea, we don’t recommend that to anyone. Theoretically it should even work, but we don’t want to deal with that mess.
”
Similarly, Parity release manager Afri Schoedon told CoinDesk that he recommends 2.
2.7, though the other two should work as well.
In a blog post , core developer Hudson Jameson wrote that anyone who does not run a node or otherwise participate in the network does not need to do anything.
Smart contract owners do not need to do anything either, though “you may choose to examine the analysis of the potential vulnerability and check your contracts,” he wrote.
However, he pointed out that the change that could introduce the potential issue will not be enabled.
As of the blog post’s publication, security researchers with ChainSecurity, who initially discovered the bug , and TrailOfBits are analyzing the overall blockchain. Reentrance attacks
So far, no instances of the vulnerability have been discovered in live contracts.
However, Jameson noted that “there is still a non-zero risk that some contracts could be affected.”
In order for transfers on ethereum to avoid reentrance attacks, a small amount of ether called gas is paid which prevents attackers from repurposing a transfer to steal funds.
However, as explained to CoinDesk by Hubert Ritzdorf – the individual who found the vulnerability and CTO of Chain Security – a “side effect” of EIP 1283 ensures attackers can leverage this small amount of gas for malicious purposes.
“The difference is before you couldn’t do something malicious with this little bit of gas, you could do something useful but not something malicious and now because some of the operations became cheaper, now you can do something malicious with this little bit of gas,” said Ritzdorf.
And though the issue of reentrancy is always on the minds of smart contract developers coding in Solidity on ethereum, Matthias Egli – COO of Chain Security – explained that core developers strictly looking at the mechanics of the virtual machine couldn’t have easily spotted this vulnerability.
He told CoinDesk:
“It’s a Solidity thing, it’s not an [ethereum virtual machine] core thing that in practice allowed this attack. That was part of this disconnect that in practice small changes to gas cost will allow new kind of attacks which wasn’t considered before.”
What’s more, Ritzdorf added that the fix to this issue isn’t as easy as updating ethereum’s gas cost limits, explaining that “if we change this amount to a small number now then we would fix the vulnerability but we would also break many existing [smart] contracts.
”
As such, for the time being, a delay to Constantinople was the right call by core developers according to Egli.
“I t was the right decision because it at least buys some time for researchers to evaluate the real world impact. With high likelihood, this [EIP] will be taken back and not included in the upcoming hard fork which is now delayed by perhaps a month,” he contended. Next steps
As of press time, developers are contacting exchanges, wallets, mining pools and other groups which use or interact with the ethereum network.
Core developers plan to discuss longer-term steps – including when to execute Constantinople and how to fix the bug in EIP 1283 – during another call on Jan. 18.
Multiple developers suggested initiating some sort of bug bounty program focused on analyzing the code, in order to ensure future bugs are discovered well in advance, rather than “ right before [hard fork] day .”
Szilágyi noted that the EIP had been available for review for nearly a year, adding that “maybe it’s not a bad idea to do some grants for more focused eyes.” .
