Very nice article. I was really looking for someone to say that there is something wrong with what GS is saying about their positions. I was even wondering how come that their Flag bearer Alpha Fund loses as much as 40% when in fact other Quant funds like Renaissance only loses 7%? Though still whatever happens to Goldman, the respect in its name will always be there. I'm working as a controller of CDS with one of its competitor and we are providing them ALWAYS with discount and we take the losing position at the very first day of trade with GS
I'm thinking of going short goldman. there doenst seem much risk on it as a long XLF stays depressed and if this guy is right when people realize their level 3 is toast, stock will plunge huge
Buying puts offers greater leverage. From Stanley Druckenmiller's interview in The New Market Wizards (p. 208): George Soros came into my office and we talked about the trade. "How big a position do you have," he asked. "One billion dollars," I answered. "You call that a position?" he said dismissingly. He encouraged me to double my position. I did, and the trade went dramatically further in our favor. Soros taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage.
Anyone who has had a huge trade probably experienced this. Why does it happen? Well, when you add to a position already going in your favor, you put more stress on the guys holding positions going against them. I experience this when I add to large short positions, you bang it down, and you can almost feel the long traders moaning and then caving in. They cave in in levels. The, of course, experience teaches you when to take what is yours before the tide reverses. When you have the huge position on, how much is enough for you?