Everyone has been talking about how legendary derivatives trader Boaz Weinstein, the founder of Saba Capital and former co-head of credit trading at Deutsche Bank, is the man on the other side of the disastrous JPMorgan trade. I was there on February 2 when Weinstein recommended buying the Investment Grade Series 9 10-Year Index CDS, which is reportedly the same security the JPMorgan desk was short.
Weinstein, who started Saba in 2009, revealed this huge trade idea that would ultimately cream the bank during the Harbor Investment Conference at JPMorgan’s Park Avenue offices in New York (how ironic).
Here are some more highlights from my notes. I’ve also included the original report from that day.
- Weinstein asked the audience a question about whether “credit is more volatile than equities?” He said there are much bigger, extreme moves in credit than equities. He then provided some examples of credit to equity on a historical basis.
- He revealed that he bought “protection” on Investment Grade Index IG9 10 Year Index on the day before the conference. He said it could be bought at below NAV (net asset value)
- His trade idea was to buy IG Series 9 10 Year Index CDS (maturing on 12/20/2017) because they are “very attractive” and already at a 21% discount so investors could have a “head start.” He emphasised that the trade could be bought at a “very good discount.”
- He said the topic of credit is “very much misunderstood” adding that there’s “much better liquidity in CDS.” He added that IG investors need to use “incredible leverage.”
Here’s the original report:
Boaz Weinstein, the founder of Saba Capital and former co-head of credit trading at Deutsche Bank, revealed his big trade idea Thursday at the Harbor Investment Conference.
The derivatives trader and legendary hedge fund manager said his trade idea is to buy Investment Grade Series 9 10-Year Index CDS (maturing on 12/20/2017).
“They are very attractive,” he explained adding that they can be bought at a “very good discount.”
Weinstein said he bought the CDS a couple days ago.
The Markit CDX North America Investment Grade Series 9 10-Year Index is comprised of 125 equally weighted credit default swaps on investment grade entities distributed in six sub-indices – high volatility; consumer; energy; financial; industrial; and tech, media and telecom, according to Bloomberg data.
This index is used as a hedge, or insurance, against credit events.
The Harbor Investment Conference, which was hosted by hedge fund titan and philanthropist Bill Ackman, brought together some of the industry’s top investors to share ideas for trades, while also raising money for the Boys & Girls Harbor.
All trade ideas were embargoed until after 4 p.m. on Friday.