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Gross Bets Against Gross, Loses

Tyler Durden's picture




 

On April 21, Bill Gross subtly suggested that German Bunds may be overbought: 

Around a week later, Bunds begin to sell-off hard and as April turned to May, a “cascade of small events created a large splash in a structurally ever-thinner mkt” (to quote HSBC), triggering a veritable rout that sent yields on the 10-year from around 10bps when Gross made his short call to a high of more than 70bps during Thursday’s session. The sell-off has been variously attributed to factors ranging from profit-taking, to scarce liquidity, to the frontrunning of what is expected to be a positive month for EGB supply. 

Given the above, one might have expected that Gross, assuming he followed his own advice, has fared well over the last several weeks. Unfortunately, it appears he may have bet that Bunds would remain range-bound over the short-term (perhaps believing that Mario Draghi’s bazooka would be enough to prevent a dramatic sell-off) because as Bloomberg reports, by the end of March, Gross had sold puts on Bund futures in an amount equal to nearly 5% of his fund’s net asset value. Those puts have risen by as much as 11,000% in the case of one contract, and 6,000% in the case of another. 

Via Bloomberg:

Gross compared his strategy to selling insurance, saying investors were now willing to pay fatter premiums to protect their holdings against future bond market turbulence. This strategy positioned Janus Global Unconstrained to boost returns with these premiums as long as volatility remained low, but also exposed the fund to losses should markets become more turbulent.

 

Gross at the end of March had sold both put and call options on futures contracts tied to 10-year U.S. Treasuries as well as German bonds. Among them were puts on German bund futures whose adjusted face value equaled about 4.6 percent of Janus Global Unconstrained’s net assets as of March 31.

 

With the German bunds falling, the prices of the put options soared. One contract that would obligate Janus Global Unconstrained to buy futures on German bunds later this month has jumped more than 6,000 percent since late April, and another has surged almost 11,000 percent, according to data compiled by Bloomberg.

 

Put options that Gross sold short on U.S. Treasury futures have also jumped in price, but to a much lesser degree than those on German bunds. One such put option on futures for 10-year Treasuries is up more than 500 percent since April 21, according to data compiled by Bloomberg.

 

Gross said in the April 29 interview with Bloomberg Television that he hadn’t changed his positions. German 10-year bond yields surged the most in two years that day, a jump that surprised even Gross, who said he had expected the yields to rise, and prices to fall, over an extended period of time.

 

‘‘Today wasn’t a good example for my case because prices moved a lot,” Gross said in the interview.

In other words, Gross — like the ECB — assumed the bursting of the Bund bubble would unfold over a longer period of time and in a measured fashion and so, he figured that in the interim he would take advantage of elevated premiums by selling puts. Unfortunately, his “short of a lifetime” call sparked panic selling into a structurally thin market. That is, he made the right call but made the mistake of assuming the market is still to some degree efficient. 

Or, to use Gross’ own words: “When you sell volatility and you get volatility, then it’s not a good thing.” And boy has it been volatile.

 

 

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Thu, 05/07/2015 - 13:43 | 6069752 Your guess is a...
Your guess is as good as mine's picture

They said there would be no math.

Thu, 05/07/2015 - 13:59 | 6069797 Stackers
Stackers's picture

Gross is just another scumbag banker.

Gross: Hey everyone Bunds are going to crash !.... and you're all in luck because I'm selling insurance.

Then got pwnd by his own scam gaining too much traction

Karma's a bitch, uh Bill ?

Thu, 05/07/2015 - 14:30 | 6069847 knukles
knukles's picture

He sold puts.
What the in the Holy Sufferin' Be-Jesus Hell is he doing underwriting "property/casualty" type financial insurance with the money of clients who hired him to run bonds, not a fucking insurance company? 
                       And bet against his own forecast?

                                         Wondering if he fingered his own bung whilst masturbating as a child.

Thu, 05/07/2015 - 14:42 | 6069935 kliguy38
kliguy38's picture

because he's a fochin numbnut......he needs to go back to the blackjack tables

Thu, 05/07/2015 - 14:18 | 6069848 Kirk2NCC1701
Kirk2NCC1701's picture

They said there would be 'no Meth'.  There still be maff.

Thu, 05/07/2015 - 13:46 | 6069759 FrankDieter
FrankDieter's picture

Gross is a fool.

 

Thu, 05/07/2015 - 14:19 | 6069852 Kirk2NCC1701
Kirk2NCC1701's picture

Yeah, sure.  Don't you wish you were as big a 'fool' as he is?  I do.

Thu, 05/07/2015 - 14:23 | 6069870 knukles
knukles's picture

I'll deflate my ego and play more the fool for a few billion.

Thu, 05/07/2015 - 13:49 | 6069768 KnuckleDragger-X
KnuckleDragger-X's picture

Once again, chaos rears its ugly head......

Thu, 05/07/2015 - 13:55 | 6069782 Arius.
Arius.'s picture

blame it on the machines, the herd instict, greed and not much brain to think as he does.

 

in his defense, a lot of strange things seems to be happening lately ...

i would be curious to know the lucky receipient who provided liquidity for Gross's trade ?

Thu, 05/07/2015 - 14:20 | 6069857 knukles
knukles's picture

Betcha it was Goldilocks.
Betcha betcha betcha betcha betcha betcha betcha betcha betcha.....

Thu, 05/07/2015 - 13:58 | 6069789 Dr. Engali
Dr. Engali's picture

With his big ego he couldn't shut his mouth about his anti-establishment positions and TPTB again made him pay the price.

Thu, 05/07/2015 - 14:43 | 6069938 kliguy38
kliguy38's picture

exactly

Thu, 05/07/2015 - 14:51 | 6069962 Arius.
Arius.'s picture

confused ... did he pay himself or with OPM ?

Thu, 05/07/2015 - 14:12 | 6069835 zeronero
zeronero's picture

Can someone please tell me where I would be able to buy/sell calls/puts to short various govt bond prices?  

Anyone who does has my utmost gratitude.  

Thu, 05/07/2015 - 14:22 | 6069864 knukles
knukles's picture

You can Google that for some answers ....
For UST's the CME (Crimex) will take more than 'Good" care of you.

http://www.cmegroup.com/trading/interest-rates/files/IR147_USTreasuryRev...

Thu, 05/07/2015 - 14:24 | 6069874 ghostofgo
ghostofgo's picture

He can't be that smart. Supposedly he has the opportunity of a "lifetime" and he goes and blabs on Twitter? lol.

Thu, 05/07/2015 - 14:35 | 6069915 Elliott Eldrich
Elliott Eldrich's picture

Talking to yourself is perfectly normal. Arguing with yourself is not such a good thing, but tolerable. Losing arguments with yourself is a sign that you need help.

Losing bets against yourself probably means help is no longer a viable option...

Thu, 05/07/2015 - 14:40 | 6069929 aliki
aliki's picture

some would consider what he did putting on the perfect hedge; he actually goes long in the fund but goes all over the airwaves as a short. fucks his investors yet is right in theory, on the record to the media. absolutely brilliant. lol.

Thu, 05/07/2015 - 14:48 | 6069948 Yen Cross
Yen Cross's picture

   Uncle Billy got taken to "reality ranch" by the central banksters today...

 Why didn't Gross just buy "calls" instead of selling "puts" on his own inventory. Of course the premium is higher. He's open to more risk.(margin calls)

 Who cares though... Billy just passes the extra risks & costs off to his Janus muppets.

Thu, 05/07/2015 - 14:55 | 6069981 knukles
knukles's picture

       "Castrate a Muppet for Christ"

Thu, 05/07/2015 - 15:04 | 6070012 Yen Cross
Yen Cross's picture

     lol. Knuks, Gross is a prime example of ZIRP investment "risk" strategies... He'd rather hedge his direct position at a cheap interest rate (margin cost), as opposed to paying the premium up-front, for a smaller return,but more rational investment profile.

    I thought(most) bonds were supposed to be conservative investments?  We have this clown directly hedging his client portfolio, because of low borrowing costs. If he's so uncertain about his original trade that it needs to 100% hedged, why would he want to take on additional risk?

Thu, 05/07/2015 - 15:42 | 6070181 mantrid
mantrid's picture

"That is, he made the right call but made the mistake of assuming the market is still to some degree efficient. "


or, like Goldman, he said one thing and did the opposite :P

Thu, 05/07/2015 - 22:41 | 6071535 Blopper
Blopper's picture

You're a bad boy, Gross. You talked your book and as a consequence you suffer for it.

Fri, 05/08/2015 - 01:47 | 6071871 JoWazzoo
JoWazzoo's picture

Well Gross fucked up big time.  Sometimes, like him I feel convinced.  Then get scared.  And fuck up.  A trade starts to go wrong.  Bail.  Had I held, could have made a fortune.

 

But Gross here is way to screwed up!  Selling effing PUTS on the best bet of a lifetime?  WTF!  Greedy dumb ass.

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