Stress Tested

• Posted by Adam Warner
• on July 23rd, 2010

So if you got caught short volatility in May, turns out you were not alone. Even the great one’s have a bad position on too.

No, not Lenny, he was long gamma no doubt. We’re talking Goldman here.

As a result of meeting franchise client and broader market needs, we had a short equity volatility position going into the quarter. Given the spikes in volatility that occurred during the quarter, equity derivatives posted poor quarterly results,” Goldman’s chief financial officer, David Viniar, told analysts on a quarterly earnings conference call on July 20.

To which, Felix Salmon tweeted.

I love that when Goldman’s trading desk loses money, it rushes to say that it was “meeting franchise client needs”

Yes, those altuists indeed.

I would guess there’s a kernel of truth at least to the fact that they had the wrong position on. Even though the magnitude of the volatiltiy pop was far from unprecedented, the speed of the pop did catch many by surprise. At least that was the word at the time.

But no, they didn’t have that position on to “meet client needs”. If they were indeed short vol. and caught, they clearly liked the position. If we learned one thing from the SEC suit, it’s that GS will bet how they feel like betting. Not that we needed a lawsuit to figure that out.

 

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