The US stock market in 10 days four circuit breakers, which let the “god of stocks” Buffett was not spared the doom of losses.
According to GuruFocus, Buffett’s stock portfolio has lost at least about $80.2 billion, or 32%, since the U.S. stock market fell into a bear market on February 19, 2020.
Its top three holdings, Apple, Bank of America and Coca-Cola, lost $19.95 billion, $13.2 billion and $5.8 billion, respectively.
Whether it is the foreign exchange futures market or the stock market, the “flash crash” is like a financial demon, which can destroy all the institutional retail investors in the market. Even the financial giant like Soros will be “terrified” and even tremble in front of the flash crash.
Michael J Reed, who has more than 30 years of trading experience in the financial market, is a person who experienced the 1987 stock market crash. Many investors want to know the details of the 1987 stock market crash. Michael J Reed talked about his own personal experience and insight in the “stock market crash”.
Make money with your eyes closed, net profit 170% in 7 days!
In 1982, when options became popular, I also started trading stock options, and when standard 100 index options were introduced, I started experimenting.
Between 1982 and the crash of 1987, the stock market was booming.
The stock market was a bit overzealous in the 1980s, and much like the tech bubble in 2000, it was easy to make money from stocks.
As a trader, I became as frenzied and agitated as the rest of the traders, when everyone had one thought in their head: “Buy any pullback, it will always go up.”
I am a very thrifty person and quite old-fashioned. I have organized and saved a lot of my trading slips. When the stock market crashed in 1987, I also kept some trading slips.
On August 6, 1987, I bought 10 Standard 100 index call options at a purchase price of $6.50, costing $6,500, and paid $139.60 in commission, for a total cost of $6,639.60.
A week later, on August 13, 1987, I closed all my positions and sold all 10 S&P 100 call options for $18.50, making a profit of $18,500. Net of the $254.80 commission and 0.62 stamp duty, I made a profit of $18,244.58 on the trade.
I spent $6,639.60 and made $18,244.58, which netted $11,604.98 in just 7 days, a net return of 175%!
It was a very attractive figure, and I regretted at the time that I had bought so little. Why didn’t I buy more?
In fact, the stock market was near its bubble peak on August 13, and then, on October 19, 1987, the dreaded “Black Monday” began to wipe out the wealth of countless investors.
The stock market peaked in August, started to wobble in September, then stopped, and then everything started to go really bad.
I missed the chance to get rich. This deal will never forget me!
I opened a trade in early October that I will never forget.
In early October 1987, after the stock market had fallen from its August peak, it had rebounded, and my sense was that the rebound would be followed by another downward correction.
I used a technical indicator that said it was heavily overbought. I plotted it on a piece of paper and I saw a sell signal. I could buy a put option on the S&P 100 and sell it for a profit.
I can no longer find a voucher for that early October trade, but I do remember buying 10 S&P 100 puts in early October.
On Friday, October 16, the day before Black Monday, I closed out 10 puts when the market started selling and stocks fell.
At that time I was very happy, thought at the bottom of the market to close the position, think myself very clever.
The euphoria stayed with me until Sunday morning, when Friday’s sell-off caused many “dumb money” investors to panic, and when the stock market was all over the TV shows on Sunday morning, I was still feeling smug.
On the morning of Monday, October 19, 1987, investors began to pay attention to FNN’s newscast (once a financial newscast), and the news anchors became nervous.
When the stock market opened sharply lower, I was watching the news and reading the market charts, ready to call my broker and place an order. However, my sense prevailed over my impulse and I decided to do nothing for the time being and watch and wait.
I quickly rewind the VCR tape and start recording the news broadcast by FNN.
On October 19, I was watching the news on FNN. The market was in complete chaos and many people couldn’t believe it. I opened my chart and switched to the 1 hour chart to check the trend of the S&P 100.
If I hadn’t closed my 10 puts last Friday, I would have made a fortune, become a millionaire and walked out on top.
By the close, the Dow Jones Industrial Average had dropped a staggering 508 points, or 22.5 percent, on a day known as “Black Monday.”
Above is a price chart I drew before Black Monday, shortly before the Oct. 19 crash.
The day after the flash crash, on October 20, the market rebounded higher and it was a good time to buy put options. I thought there would be another flash crash to make new lows and I could lock in a lot of profits if I fell just 10 points.
I insisted that the market would fall again, but it did not. I made a big mistake and did not do a good job in risk management, resulting in a lot of losses. Not only did I lose out on the previous profit of more than $10,000, but I also lost an additional $10,000!
In the 1987 crash, Soros lost $800 million. Martin Schwartz, one of Wall Street’s most famous traders, Forexpress wrote about his successful trades.
Schwartz wrote about the 1987 market crash in his book Pit Bull.
He wrote: Debbie and I were standing in the corner during the market open on Thursday morning.
Presch was a master of masters.
If he says the market will go down, it probably will.
Up or down, the market is full of volatility and I have to ride it.
Ding ding ding.
The market is open.
Debbie yelled at me on the phone, “Lehman just sold thousands of contracts!”
“Quote, quote, damn it, give me a quote!”
“The offer is 240!”
“Good heavens!
258 at the close yesterday.
What’s going on here?
What was Lehman thinking…”
There was no buying in the market for a while, and the huge selling sent the market plummeting…
Finally, after the S&P 500 fell to 198, buying began.
I screamed, “Buy in!”
…
In the process, in just 12 minutes, I made $290,000 and traded 12 contracts.
What happened in between: At 9:30 on October 22, 1987, the price of the Chicago Mercantile Exchange (CME) jumped sharply and opened lower. It completely lost its pattern and became completely unpredictable. It was a terrible accident.
Cme is buzzing that Lehman is planning to sell thousands of contracts when markets open today.
Lehman’s sell-off of thousands of contracts was the work of financier George Soros’ Quantum Fund.
Soros, apparently acting like an investment guru, decided to liquidate all 2,400 of the S&P 500 futures contracts held by the Quantum Fund, selling them as soon as the market opened.
Goldman bought some contracts at the open, and Lehman bought some contracts on its account.
‘The big seller was George Soros,’ a Lehman executive said. ‘It was through Lehman that Soros ordered the selling. We almost went crazy when we heard the news.’
According to Barron’s, Soros’s first trade, selling 1,000 contracts, sent the market into an instant crash, leaving traders in a dazed state of what was happening and hesitating until the market fell near 200 before launching an attack.
Soros locked in a price between 195 and 210, and within minutes, the market quickly rallied to 230, making a lot of people rich in a few short minutes.
Details of one of the most famous trades on the Chicago Mercantile Exchange emerged in U.S. District Court in Chicago, where Soros sued Lehman for $160 million before settling the matter out of court.
The only plausible explanation is that Soros was required to make a margin call, and his broker sold him out and liquidated all his contracts.
That’s why Soros sued Lehman.
Soros is said to have lost $800 million.
This article is reprinted from Huishang Media
