U.S. Hedge Fund Hedge Fund Crash, Apple Corp Short Positions Exceed 13 Billion U.S. Dollars

"Since March, I feel every day witnessing a new record of the financial market." A Wall Street hedge fund manager Zhang Gang (a pseudonym) regrets to the reporter.

However, he did not feel grateful that with the global spread of the new crown pneumonia epidemic, investment panic in the financial market increased dramatically. Over the past two weeks, the US stock market fell more than 20%, and experienced three times of collapse.

This has made his job relatively simple. First, he saw the US stock market futures fall sharply before opening. He hurriedly added the short positions of the S & P 500 index futures to hedge the position risk, and the two was to continue to reduce the US stock positions in the middle of the market to avoid risks. The three was to look for good brokers and investment banks everywhere.

"Even though the US stocks rebounded a few days ago, we still chose to cut back on high prices and never dare to copy the bottom." He told reporters. The reason is that more and more investment organizations in Wall Street are worried that the spread of the new crown pneumonia epidemic is leading to a large "stagnation" in the economic activities of the countries in Europe and the United States. Most of the listed companies fail to see the valuation. In addition, investment banks and brokers suddenly tighten the margin of trading margin, which makes more and more hedge funds face the vicious cycle of the US stock market crash and forced liquidation.

Reporters have learned that despite the recent sharp start in the US Federal Reserve cut interest rates, the $700 billion QE plan and the provision of $500 billion overnight repo market liquidity measures, it is still difficult to reverse the hedge fund's continued bearish attitude toward US stocks.

"In fact, most of the liquidity released by the Federal Reserve stays at the banking level, and there is not much money flowing into the financial market, which can not change the current tense situation of US dollar positions in financial institutions." BK Asset Management strategist Boris Schlossberg told reporters. This makes Wall Street investment institutions selling stocks surging. For example, when Apple announced the closure of other stores in addition to the Greater China region, hedge funds further bet on the decline in Apple Corp shares, making Apple Corp's unliquidated market capitalization surpass $13 billion, making it the largest listed company in the US capitalization market.

It is worth noting that with the recent US stock market crash, many strategic hedge fund performance began to polarize.

Boris Schlossberg revealed that since late February, hedge funds, which have been betting on the callbacks of US stocks, have achieved more than 12% returns. But at the same time, Waterloo's most diversified hedge funds with high tech stocks have suffered from their performance. In addition to the net value drop of more than 15%, they also faced a storm of forced net liquidation of leverage investment portfolios.

The "bottomless" US stocks?

After the Fed sharply cut interest rates by 100 basis points and launched the $700 billion QE plan, Zhang Gang still decided to continue to increase the strength of Dagu's air and American stocks, though the fund's stock short to medium ratio had adjusted to 7:3 from mid February's 4:6.

"On the face of it, Wall Street financial institutions believe that the US Federal Reserve has played so many ammunition at one time, resulting in its inability to cope with the persistent spread of the future epidemic and the extreme situation of the US recession, which in turn has led to heightened market panic." Zhang Gang told reporters. The biggest factor that triggers the US stock market crash is that Wall Street hedge funds foresee that the Fed will substantially cut interest rates by 100 basis points, but their investment models do not have enough preparation for them. Once the Fed really cuts interest rates and starts large-scale QE, how do we define the reasonable pricing of US stocks, US bonds, US dollars and related financial derivatives? However, in the face of such uncertainty of valuation, what they can do is to continue to reduce the risk of US stocks.

Boris Schlossberg admitted to reporters that this can not be entirely attributed to hedge funds. Because their investment models have never experienced such a situation before, when the spread of the epidemic has led to large-scale economic stagnation in Europe and the United States, how should the valuation of many listed companies be calculated?

"So we can only assume an extreme scenario. When the economic activity in Europe and the United States stagnates, the valuation of US stocks will not fall." Boris Schlossberg points out.

A large Wall Street equity hedge fund manager told reporters that it is impossible to give accurate valuation of US stocks, so they can only continue to reduce US stocks. Since last week, they have dropped the US share position from 70% to 40%, and increased the investment of ETF to 3 times the selling price of the S & P 500 index to 15%.

In order to avoid the risk of holding positions by maximizing the risk of hedging in order to maximize the risk of hedging positions, they switched to the Chicago option exchange (CBOE) panic index VIX call option, which also accounted for 3.5% of the assets of the fund.

Data showed that the VIX panic index hit a record high of 82.69 at the close of March 16th, making them very profitable.

Reporters learned that, because many hedge funds worry that the US stock exchange will soon introduce restrictions on short selling measures, VIX buying option is becoming the mainstream option for them to hedge their positions.

"In fact, the positive return of the VIX call option can only reduce our net value decline. At present, the huge fluctuation in the US stock market is the volatility Arbitrage Strategy Fund." The above Wall Street large stock hedge fund manager revealed. Before February, because the volatility of US stocks was less than 1%, the annual interest rate of the volatility Arbitrage Strategy Fund was only 7%. With the recent US stock volatility increasing to more than 10%, they could get at least 2.5% of the return on investment every day through the option futures derivatives portfolio. At present, some volatility arbitrage funds have a cumulative return of over 18% in March.

A head of the wave Arbitrage Strategy Fund told reporters. At present, they are planning to "get better" - actively invest in the amount of investment in volatility arbitrage. The reason for this is that the recent 10 year rise in the US bond yields has raised the cost of leveraged financing and swallowed up about 1/4 volatility arbitrage earnings. More importantly, under the environment of both the uncertainty of US stock market and the risk of US economic recession, once the fluctuation arbitrage transaction is wrong, the whole leveraged portfolio will burst quickly and all profits will be lost.

"Flood" is difficult to save margin gap

In the eyes of many hedge fund managers, another backstage driver that triggered the recent sharp decline in US stocks is that brokers and investment banks have tightened trading margins and leveraged investment thresholds sharply.

"During the bull market in the past, the broker gave us 4 times leverage. Now this figure is compressed to 2.5 times, and the broker has asked us to deposit a large margin in order to deal with the margin gap caused by the continued fall of US stocks by 15%." Zhang Gang revealed. This has forced him to look for other brokers or investment banks to borrow money recently.

In the meantime, Zhang had hoped that the Federal Reserve had cut interest rates by 150 basis points since March and launched the QE plan to ease the pressure of liquidity in the financial market. But he soon discovered that most of the liquidity released by the Federal Reserve was held at the bank level, because more and more American businesses were raising loans on the upper limit of bank credit limits, and banks were also planning to retain more. With more funds to cope with the unexpected, dollar liquidity in the financial market has not been effectively alleviated.

"In order to control risks, even if the Fed sharply cut interest rates, many brokers still raise capital borrowing costs by about 40-60 basis points, which has led many hedge funds to raise interest rates too high, preferring to sell gold and US debt financing to fill the margin margin of trading margin." Zhang Gang told reporters. This is bound to trigger a vicious circle in the financial market. Therefore, more and more investment institutions find that behind the rise of the US bond yields and the fall in gold prices, it is hedge funds and other investment institutions that raise funds to fill the margin gap. They will worry that the margin gap of investors in the entire financial market is quite large, and the corresponding forced liquidation risks remain high. Stock hedging.

The above Wall Street large equity hedge fund manager revealed that they intend to further reduce their US share positions from 40% to 25% in the week, and stock positions are mainly concentrated in defensive sectors such as public utilities and medicine, and retain about 40% cash share.

"In fact, our current operation strategy is almost the same as that of the subprime crisis in 2008, but considering that the severity of the crisis caused by the spread of the epidemic may exceed that of the subprime mortgage crisis, our cash ratio is also going to increase by 10 percentage points." He admitted.

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