Its boom-time for at least one trading desk at the Wall Street.
According to media reports citing people with knowledge of the matter, on a day in February when the serenity of the stock market was suddenly shattered by an increase in volatility, about $200 million wads made by Goldman Sachs in profit on that single day. The report claimed that the profit amount was roughly equal to what the annual profit that is made by the firm’s derivatives unit.
According to reports, the firm had set itself up to take advantage of the Choe Volatility Index which is sometimes referred to as the “fear index” since it is reflective of the expectations of future volatility and it made profits when it climbed. On February 5 – following a number of months of stability, as the S&P 500 dropped 4.1 per cent and the Dow Jones industrial average dropped more than 1,100 points, there was an increase of 116 percent in the VIX noting its biggest one-day move on record.
And as a consequence, the New York-based bank’s stance and position were suddenly highly profitable as clients of the hedge fund and asset management segment of Goldman demanded more VIX exposure in the hope that it would climb further.
Goldman’s flow derivatives group gained from the movement. Calm markets and regulation in recent years had negatively impacted the business which is essentially comprised of a team within larger equities division that trades securities like VIX options at Goldman. The company said in February that more than $100 million in revenue on just four days was earned as revenue by the business during the entire last year.
Goldman equities executives are optimistic they can regain the No. 1 ranking and they hope to attain that by their recent performance and investments in trading technology which are beginning to show results. The number of 1 position had been conceded by Goldman to rival Morgan Stanley at the end of last year according to reports. In recent years, gains against has also been made by JP Morgan Chase.
The increase by Morgan Stanley and J.P. Morgan was exceeded by Goldman and its position on volatility with a 38 percent increase in first-quarter equities trading revenue at $2.3 billion.
However, there are potential hazard of such trading moves even though the lender is known for managing risks well. In a manner in which Goldman was hit in 2017 by a wrong betting on commodities, the business would have faced loss in case the market had gone the other way.
“I don’t think it would be a good strategic move to forgo the upside in the business from here,” said Lloyd Blankfein, Goldman CEO.
(Adapted from CNBC.com)