Saturday, 20 December 2014
Last updated 1 day ago
Nov 3 2008 | 11:18am ET
Betting on the highly improbable paid off for invesotrs in one hedge fund last month.
Universa Investments, the $2 billion hedge fund founded by New York University risk engineering professor Nassim Nicholas Taleb, did something that seems impossible for funds that keep 90% of their assets in cash: post triple-digit returns. The firm's Black Swan Protection Protocol funds made between 65% and 115% last month, according to The Wall Street Journal.
How? Taleb's strategy of buying way out-of-the-money put options—in this case, on American International Group, which was effectively nationalized in September. In July, Universa bought AIG options that would pay off if the stock fell below $25 for $1.29 each. AIG, which traded at $26 in July, sunk below the magic number in early August before completely collapsing in September before the government bailout. Universa eventually sold its puts for $21 apiece.
Universa also benefitted from betting against the Standard & Poor's 500 Index in late September, buying options that would pay off if the index fell to 850 by the end of last month. By Oct. 10, when the S&P 500 had fallen below 900, the options were selling for $60 each.
Taleb, whose book The Black Swan discusses the effect of highly improbable events on financial markets, consults for Santa Monica, Calif.-based Universa, which is run by Mark Spitznagel.
Dec 1 2014 | 10:21am ET
As 2014 winds down, Northern Trust Hedge Fund Services executives took some time to share their outlook on trends facing the industry in 2015. Read more…
Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.