The Day I Lost £10 Million: My Craziest Day Ever
I lost £10 million in one day. That's how much my trading portfolio plummeted on March 16th, 2020, the day that changed me in some ways forever.
It was a day that didn’t start well. I was at Cheltenham the week before; I drank too much (way too much), gambled too much, and nearly got arrested in a pop-up strip club. I thought that was a bad week—well, I was wrong. The trading floor of the S&P 500, usually a place where the big beasts of volatility come to play, was silenced. This 'temporary' closure was more than a mere inconvenience; it was a harbinger of an oncoming storm, worse still, it sucked a ton of liquidity out of a market that was bone dry already.
The Calm Before the Storm
As I logged into Bloomberg and fired up my spreadsheets at 7:00 AM, I felt a wave of dread wash over me, like that time I broke a window at school and had to report to the headmaster. This would not be a good day. I was short SPX variance swaps, a dangerous—some might say suicidal—position because their payoff is convex, meaning that the more the market goes against me, the bigger my position becomes, and therefore the bigger my losses. This is how funds blow up. Indeed, a few did that day. As I scanned my launchpad, I could tell the usual ebb and flow of the market was disrupted; it was a sea of red, liquidity was evaporating, and the big players, the usual counterweights, had receded into the shadows, some for good.
My mood soured as I checked the marks from the back office at 8:30 AM. The figures seemed crazy; the moves from the day before were insane, and today would be worse. I knew that my shorts all got smashed and my longs hardly moved. I realized my back office hadn’t got a clue, and when I checked my counterparty statements, it was worse—they were screwing me; it was clear, trying to force me to close at an artificial price that suited them.
The Market Meltdown
I argued with our pricing team at 10:00 AM, wrestling with inconsistencies and discrepancies. It was like talking to a wall. They didn’t even understand what a variance swap was; the team was outsourced to Poland. The guys on the ground were helpful, but their manager in the US was an asshole and clearly out of his depth. I would have to bypass him.
The once-friendly banks were using our vulnerability, looking for an edge to screw us over, at 12:00 PM. I reached out for some colour to Goldman Sachs; JPMorgan was useless—they just told me they had no idea where SPX variance would open but it would not be pretty. They made me some ludicrous prices to exit, but I declined. Their necks were on the line too, but a couple of long-term friendships ended that day.
I reached out to old colleagues and contacts at 1:30 PM, seeking some hint of market colour. The picture they painted was grim—a few big funds had blown up, caught short in the same way I was, but in much larger size and at a worse point on the curve. I knew their pain would hit the market soon as their counterparts closed out their positions.
Time was running out. I needed a lifeline. I needed to reduce my position, and fast. I walked over to my head of trading at 2:30 PM, but his response sent chills down my spine…
I can't help, mate. There is no market." Despite what had already happened, this was a low point; it felt like 2008 all over again, except then I was making, not losing, money. I needed to shift gears, step out, take stock, step up, and step back in.
The Fight for Survival
Driven by necessity, I made a move at 3:30 PM. After a crazy opening, the market had settled a little; there was a window of liquidity, as some brave souls faded the move. I closed some of my short positions; it was a vital pill to swallow, but it was crucial for damage control. The market was tough, and I was in a fight to stay alive.
As we moved toward the UK close, I thought about reducing more of my short, but it felt like the wrong thing to do, and I didn’t really know where the market was. I still thought the reaction to Covid-19 was technical and would wash over like Bird Flu (wrong!). In a last-ditch effort, I bought some Japanese and Chinese volatility and sold off European bank futures at 5:30 PM. It was a calculated risk, an attempt to avoid complete disaster. My long call spreads on VIX and Gold provided a ray of hope amidst the chaos, offsetting about 30% of my short variance loss.
As UK trading came to a close at 6:00 PM, I was done for the day; the US session still had time to run, but my day was over—one of the craziest ever. My long positions on VIX, Gold, and 30yr US Swaps had provided a needed safety net. The day was far from a victory, but I had managed to weather the storm. It hurt me, though; it pained me that I had miscalculated my position. This was a day to shine, not to crash and burn, in the end I did neither but I survived, which is in a way what its all about.
Some stats to put things into context:
Lessons Learned: Weathering the Storm
So, what did I learn from this hellacious day of trading, this storm that cost me £10 million? It's simple, really, and complex at the same time—trading is a battlefield, and I, like any good soldier, must be prepared for any eventuality. When the chips are down your typically on your own, the collaborators and the partisan’s will be clear to see, this is useful info, file for later use.
I've also learned the importance of preparation. That day, I was caught off guard, unprepared for the carnage that ensued. I thought I knew where the market was headed, but I was wrong. Now, I understand the importance of having a plan B, C, and D. It's not enough to hope for the best; I must also prepare for the worst.
Lastly, I've learned a hard lesson about risk management. the absolute necessity to model everything. Even those outcomes that seem as likely as a fish climbing a tree should be considered. Had I taken the time to model this extreme move in SPX volatility, I would have seen the danger it posed. I would have begun with a smaller position, reducing my exposure to this catastrophic event.
No outcome, no matter how far-fetched, should be dismissed as impossible in the world of trading. This £10 million day taught me that reality can outdo even the wildest of scenarios. Thus, modelling must be comprehensive, and it must be rigorous. Only then can we fully understand our risk and take steps to mitigate it.
In the end, this was a painful not to mention costly lesson, but it was a lesson, nonetheless. I've licked my wounds, picked myself up, and come back to the trading floor, wiser and more cautious. I've learned something about myself, I have learned what I already knew, but had forgotten, and while it won’t change the past, I hope it can shape the future.
I lost £10 million in one day. That's how much my trading portfolio plummeted on March 16th, 2020, the day that changed me in some ways forever.
It was a day that didn’t start well. I was at Cheltenham the week before; I drank too much (way too much), gambled too much, and nearly got arrested in a pop-up strip club. I thought that was a bad week—well, I was wrong. The trading floor of the S&P 500, usually a place where the big beasts of volatility come to play, was silenced. This 'temporary' closure was more than a mere inconvenience; it was a harbinger of an oncoming storm, worse still, it sucked a ton of liquidity out of a market that was bone dry already.
The Calm Before the Storm
As I logged into Bloomberg and fired up my spreadsheets at 7:00 AM, I felt a wave of dread wash over me, like that time I broke a window at school and had to report to the headmaster. This would not be a good day. I was short SPX variance swaps, a dangerous—some might say suicidal—position because their payoff is convex, meaning that the more the market goes against me, the bigger my position becomes, and therefore the bigger my losses. This is how funds blow up. Indeed, a few did that day. As I scanned my launchpad, I could tell the usual ebb and flow of the market was disrupted; it was a sea of red, liquidity was evaporating, and the big players, the usual counterweights, had receded into the shadows, some for good.
My mood soured as I checked the marks from the back office at 8:30 AM. The figures seemed crazy; the moves from the day before were insane, and today would be worse. I knew that my shorts all got smashed and my longs hardly moved. I realized my back office hadn’t got a clue, and when I checked my counterparty statements, it was worse—they were screwing me; it was clear, trying to force me to close at an artificial price that suited them.
The Market Meltdown
I argued with our pricing team at 10:00 AM, wrestling with inconsistencies and discrepancies. It was like talking to a wall. They didn’t even understand what a variance swap was; the team was outsourced to Poland. The guys on the ground were helpful, but their manager in the US was an asshole and clearly out of his depth. I would have to bypass him.
The once-friendly banks were using our vulnerability, looking for an edge to screw us over, at 12:00 PM. I reached out for some colour to Goldman Sachs; JPMorgan was useless—they just told me they had no idea where SPX variance would open but it would not be pretty. They made me some ludicrous prices to exit, but I declined. Their necks were on the line too, but a couple of long-term friendships ended that day.
I reached out to old colleagues and contacts at 1:30 PM, seeking some hint of market colour. The picture they painted was grim—a few big funds had blown up, caught short in the same way I was, but in much larger size and at a worse point on the curve. I knew their pain would hit the market soon as their counterparts closed out their positions.
Time was running out. I needed a lifeline. I needed to reduce my position, and fast. I walked over to my head of trading at 2:30 PM, but his response sent chills down my spine…
I can't help, mate. There is no market." Despite what had already happened, this was a low point; it felt like 2008 all over again, except then I was making, not losing, money. I needed to shift gears, step out, take stock, step up, and step back in.
The Fight for Survival
Driven by necessity, I made a move at 3:30 PM. After a crazy opening, the market had settled a little; there was a window of liquidity, as some brave souls faded the move. I closed some of my short positions; it was a vital pill to swallow, but it was crucial for damage control. The market was tough, and I was in a fight to stay alive.
As we moved toward the UK close, I thought about reducing more of my short, but it felt like the wrong thing to do, and I didn’t really know where the market was. I still thought the reaction to Covid-19 was technical and would wash over like Bird Flu (wrong!). In a last-ditch effort, I bought some Japanese and Chinese volatility and sold off European bank futures at 5:30 PM. It was a calculated risk, an attempt to avoid complete disaster. My long call spreads on VIX and Gold provided a ray of hope amidst the chaos, offsetting about 30% of my short variance loss.
As UK trading came to a close at 6:00 PM, I was done for the day; the US session still had time to run, but my day was over—one of the craziest ever. My long positions on VIX, Gold, and 30yr US Swaps had provided a needed safety net. The day was far from a victory, but I had managed to weather the storm. It hurt me, though; it pained me that I had miscalculated my position. This was a day to shine, not to crash and burn, in the end I did neither but I survived, which is in a way what its all about.
Some stats to put things into context:
- On March 16th, 2020, the VIX index rose by more than 11 points (43%) to close at 36.07, its highest level since December 2008.
- On March 16th, 2020, the S&P 500 index fell by more than 324 points (11.98%) to close at 2,386.13, its lowest level since December 2018.
- On March 16th, 2020, the Dow Jones Industrial Average (DJIA) fell by more than 2,997 points (12.93%) to close at 20,188.52, its largest single-day point drop in U.S. history.
Lessons Learned: Weathering the Storm
So, what did I learn from this hellacious day of trading, this storm that cost me £10 million? It's simple, really, and complex at the same time—trading is a battlefield, and I, like any good soldier, must be prepared for any eventuality. When the chips are down your typically on your own, the collaborators and the partisan’s will be clear to see, this is useful info, file for later use.
I've also learned the importance of preparation. That day, I was caught off guard, unprepared for the carnage that ensued. I thought I knew where the market was headed, but I was wrong. Now, I understand the importance of having a plan B, C, and D. It's not enough to hope for the best; I must also prepare for the worst.
Lastly, I've learned a hard lesson about risk management. the absolute necessity to model everything. Even those outcomes that seem as likely as a fish climbing a tree should be considered. Had I taken the time to model this extreme move in SPX volatility, I would have seen the danger it posed. I would have begun with a smaller position, reducing my exposure to this catastrophic event.
No outcome, no matter how far-fetched, should be dismissed as impossible in the world of trading. This £10 million day taught me that reality can outdo even the wildest of scenarios. Thus, modelling must be comprehensive, and it must be rigorous. Only then can we fully understand our risk and take steps to mitigate it.
In the end, this was a painful not to mention costly lesson, but it was a lesson, nonetheless. I've licked my wounds, picked myself up, and come back to the trading floor, wiser and more cautious. I've learned something about myself, I have learned what I already knew, but had forgotten, and while it won’t change the past, I hope it can shape the future.
...but yes I personally know a guy that was pitched a complex product by a bank that left him conditionally long at exactly the right time, he probably made 10%!