Remember those stories you read about a “Black Swan” fund that made $1 billion on Black Monday?
“It’s all marketing garbage,” says Tom Sosnoff, a trader and co-host of TastyTrade. In a 15-minute video, Sosnoff along with his co-host Tony Battista, eviscerate a story that Mark Spitznagel of Universa Investments made $1 billion on August 24, when the Dow Jones Industrial Average plunged 10% at the open.
It isn’t even remotely possible, says Sosnoff who took out a pencil and paper to do the math.
Battista figures that if Universa had $250 million in capital to invest in put options (which Spitznagel claimed to have deployed), the fund would have needed to trade more than 60,000 in options (in one scenario) and more than 300,000 in options, in another possible scenario. The market didn’t trade anywhere near that volume. At the open, the open interest stood at 83 in the first scenario and just over 9,000 in the second.
“This scares me,” says Sosnoff. Spitznagel was splashed on every major media outlet — from Bloomberg to The Wall Street Journal and The New York Times. “How does it work? I just don”t get it. Can’t anybody do the math?”
Watch this episode of “You’ve Got to Be Kidding Me” on TastyTrade and let us know what you think.