UBS and THE Big Trade?

 

By thetrader.se

In order to “loose” 2 bln USD, you need to take quite big positions. While UBS is not saying anything, the “bet” must be in a fairly liquid product, and if not “hidden” below the desk, it is almost impossible to loose it on Equities Trading.

 

Maybe the trade was an extremely big Vega position on the CHF/EUR. A long Vega position seemed like a rather intelligent trade only some days ago, before the SNB announced to “peg” the CHF.

 

By doing that, volatility on CHF collapsed to virtually zero. Suddenly a winning smart trade, turned out to a nightmare, when CHF all of a sudden became “pegged”. There are very few, if any,  Risk Matrixes capturing this kind of scenario, because it does not happen. This is an event outside any Risk Managers stress test. This is a Black Swan event for the holder of Volatility, and the biggest ironi, such a trade would have been perfectly positioned for the turmoil in the Financial Markets. A Black Swan is not always a Black Swan.

 

Below 30 day chart of the CHF/EUR. Note the totally vanished vol in the pair. If this was the trade or not is to be seen, but this is a possible senario, given the liquidity in the currency market.

 

The Alleged Rogue Trader’s Facebook Update on the 6th of Sep;

 

Mr Adoboli’s last update to his Facebook page, dated September 6, simply reads “Need a miracle”.

 

….it just might be the above trade that caused the loss, as SNB “pegged” the CHF on the 6th of Sep…

For a summary of this subject in today's press click here. Maybe the Swiss got screwed by the Swiss?