This page has been archived and commenting is disabled.
Trading In BP CDS Explodes By 60% In One Month
According to DTCC, net notional outstanding in BP CDS as of June 11 was $1,676 million, based on 2,072 (great error-proofing there Reuters) contracts. This represents an increase of about 30% from the prior week, when net notional was $1,284 million and 1,718 contracts. Most notably, however, the increase is about 60% from $1,066 million and 1,399 contracts as of May 14. The 60% ramp up in CDS "hedging" is to be expected, now that PIMCO has gloriously entered the water. Of course, since nobody has used CDS to hedge positions since about 2002, this simply means that bets on a default in BP have surged. Observant readers will say this is the dumbest way to conclude this, when one can just look at the price of 5 Year CDS, which has exploded in the past month. These readers would be right.
»
- 2496 reads
- Printer-friendly version
- Send to friend
- advertisements -
Mr. Gross? Is that you?
Maybe the oil czar....
Can't we refer to him as the Sea Czar? The puns are limitless. All hail!
Not sure what you mean by "this is the dumbest way to conclude this."
"This" - the use of CDS against BP to make serious bank - seems to make perfect sense to me. Any financial parasites with the means to bet against BP might as well do so. After all, it's free money - there's no way that BP's bottom line gets better anytime soon.
Out-fucking-standingly hilarious. Im laughing so hard right now.
Ya i re-read that one a few times myself for correct effect lol
Just who is selling?
Someone who probably bought when the spread was sub-150 bps .... i.e. GS, JPM, DB and probably Barclays. Its free money bitches.
Hell if i had the foresight [ read; internal information] and the means [read AAA/AA credit rating] I would do the same. They will make north of half a mil per 10 mil net notional sold. So if they have sold say 5B at 600 bips and already had the same amount bought at 100 bips they will clear 250 million in profit [no matter the recovery rate]. If they played the inverted spread curve and different maturities, the locked-in profit is even bigger.
Ask Larry McDonald how you can make 250M in one day, the man did it with Delphi. Its 10 times easier done with derivatives.
I doubt that any professional would just go naked short this CDS, baby. About 15,000 October 20.00 puts traded today. So it would be part of a far more complex strategy in a well-diversified Portfolio.
I dont think you understand how banks work.
DDs would do this;and do it 100 times over without even looking at what the stock is doing. Stock might be indicative, but its not representative. Also, DD [especially Credit DD ] dont trade based on the stock movements, but on bond movements, or in extreme cases on debt downgrades [as you have seen today/yesterday/past month or so].
I really dont follow stock market [and dont care much about it]; but BP could be trading at 2$ and the bonds could still be trading 99.7 c/$ [as I believe they are now]. Stock market is shit when it comes to debt or the value of the assets creditors could recover [and with a 99.7% RR the only way [unless you are a moron] to have a substantial gain is by trading the curve/spread/maturities via CDS and either trade convergance or arbitrage the maturities [as i belive is what its being done now]].
Prime example of what I'm stating here is Delphi which went BK, but the RR was something like 60%, while the stock was trading on the pink sheets for 50 c.
Stock price is ultimately worth nothing when it comes to distressed assets.
Thank you for explaining to us how your COMPLEX STRATEGY OF A WELL-DIVERSIFIED PORTFOLIO!111 is a put option. Let me guess, theyre not naked puts right?!?!
CB: your post is too simplistic for the above clever financier who trades in aforementioned complex derivatives.
might be missing something here but 9 month BP corporate debt denominated in AussieDollars, with a coupon rate of 8% can be bought around 97.50....has everyone lost the plot? For BP to fail to pay back the principal on this 9 month debt the world has to stop spinning on its axis between now and then. Tuck in.
Those wiley Scottish widows are at it again.
And they will get their cheddar!
The more and more I see the leaders of BP the more I understand why this cluster fuck happened to this specific company. Explain to me why the suposed leader of this company has no experience in the oil industry and this euro trash swede has the balls to say we care about the "little people"....wtf. The weasal CEO is no better. Saying stuff like I want my life back. By the way the previous CEO had a gay affair and was forced to resign. If this is representative of the leadership of BP, the corporate culture of this company is fucked and therefore the company is fucked.
EURO bullish warnings mentioned earlier, have strengthened today. Vice versa for the USD index of course.
I have detected EURO buying support for several weeks now.
XAUEUR daily chart gives bearish warnings as of today.
This could be an important development.
The proprietary indicators I use in my technical analysis can identify trend changes before they occur.
http://stockmarket618.wordpress.com