Sold short

摘要

It's Monday Sept. 22. The week before, Lehman Brothers shocked the financial world by declaring bankruptcy and sent the markets into an epileptic siezure. But for me and the hedge fund I work for, things couldn't be better. Volatility is on the rise and the atmosphere is just right for high frequency trading strategies like ours. Shortly after the 9:30 open, our broker calls me inquiring about a certain short position in a retail banking company. "It looks like you are going to need to close it," I am told. The stock is trading in its teens, the BID/ASK spread is several dollars. "You can't be serious," I reply. "The spread is more than 30% and there haven't been any trades on it." The broker tells me he'll get back to me. About half an hour later I get a callback. "The position must be closed today, pay any spread you have to." I am shocked. But my position is not a big one. I pay the spread and close the position, creating a two months high in the process, and book a loss. All things considered I am pretty lucky. If I had to close a bigger position i would have ended up paying a 700% spread.