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Japanese Day Trader Made $34 Million in 24 Hours
Topic Started: 28 Aug 2015, 11:43 PM (1,786 Views)
Terry
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Legend

-------------------------------

While a lot of investors were hitting the panic button Monday, a Japanese day trader who’d made a big bet against the market timed the bottom almost perfectly and narrated a play-by-play of the trade to his 40,000 Twitter followers. He claims to have walked away with $34 million.

As financial markets got crazy this week, many people turned cautious. Some were paralyzed. Not the 36-year-old day trader known by the Internet handle CIS.
“I do my best work when other people are panicking,” he said in an interview Tuesday, about an hour after winding up the biggest trade of a long career betting on stocks. He asked that his real name not be used because he’s worried about robbery or extortion. To support his claims, he shared online brokerage statements showing his trades second by second.

CIS had been shorting futures on the Nikkei 225 Stock Average since mid-August, wagering it would fall. By the market close on Monday, a paper profit of $13 million was staring him in the face. He kept building the position. When he cashed out late that night, a collapse in New York had caused his profit to double.

Instead of celebrating, he kept trading. He started betting the market had bottomed. When he finally took his winnings off the table on Tuesday, he tweeted, “That’s the end of my epic rebound trade.” His profit, he said, had almost tripled.

“It was a perfect trade,” said Naoki Murakami, who follows CIS on Twitter and whose markets blog has made him a minor celebrity in his own right.

Trash Talking
Last year, when he was the subject of a profile in Bloomberg Markets magazine, CIS said that in a decade of day trading, mostly from a spare bedroom in a rented apartment, he had amassed a fortune of about $150 million. At the time, he shared tax returns and brokerage statements to back up his claims. One document showed he had traded $14 billion worth of Japanese equities in 2013 -- about half of 1 percent of all the share transactions done by individuals on the Tokyo Stock Exchange that year.

CIS became a cult figure among Japan’s tight-knit community of day traders by trash talking on Internet message boards early in his career. He’s notorious for lines like “Not even Goldman Sachs can beat me in a trade.” Last year he opened a Twitter account, on which he talks about video games and, regularly, his trading. It’s impossible to say how many of his followers are also day traders, and how many of those buy and sell in his wake. Those who do, of course, are quite possibly helping him make money.


Playing Poker

During the interview Tuesday at a Tokyo coffee shop, where he had agreed to talk before continuing on to a poker game with buddies, he explained his recent trades step by step. Dressed in a plain gray T-shirt with a flannel shirt tied around his waist, he was monitoring a brokerage account on his iPad and had a $1,600 burgundy under one arm, a 2003 Domaine de la Romanee-Conti. (It wasn’t a celebratory bottle, he said; he drinks a lot of good wine.)

“Of course I’m happy about today, but you win some and you lose a lot, too,” he said, explaining the Greek financial crisis had cost him about $6 million.

CIS said he has no idea whether or not China is going to drag down the global economy. He doesn’t even care. When he trades, he tracks volumes and price moves to follow the momentum. For him the basic rule is: “Buy stocks that are being bought, and sell stocks that are being sold.”

Latest Trade

The latest trade began on Aug. 12, when CIS noticed a shift in equity markets he hadn’t seen for a while. Shares in the major indexes were struggling to recover from sell-offs. He started shorting Nikkei futures: 200 contracts the first day and another 1,300 over the following week and a half.

The stakes were enormous. With 1,500 contracts at a notional value of about $160,000 each, his bet against the Nikkei was about $240 million. For every 100 yen move in the index, he stood to make or lose $1.25 million.

The market was mostly flat over the next few days; CIS bided his time playing video games. On Friday Aug. 21, the Nikkei dipped. Then on Monday, the index plunged the most in two years, and the futures fell more than 1,000 points to 18,410. By the close at 3 p.m. in Tokyo, his profit stood at about $13 million.

Feedback Loop

This is the point where most traders would take their money off the table and call it a year. Not CIS.

“I’m adding to my position,” he wrote on Twitter. “Then I’m going to go for a walk and prayer.”
He sold 100 more futures contracts. Two hours later, he sold another 100. His bet against the Nikkei had risen to about $275 million. He would lose $1.4 million for every 100-yen increase in the index.

His logic for hanging on to the trade until the U.S. open, at 10:30 p.m. Tokyo time, was this: Panic would grip American investors returning from a weekend after they saw the scope of Asian selling, including Shanghai’s 8.5 percent plunge. That would trigger selling, which, in a feedback loop, would pull Nikkei 225 futures down violently amid the thin volume of late-night trading.

“I figured there would be a lot of fear around the U.S. open and that’s what I was aiming for,” he said.

On cue, the Dow Jones Industrial Average fell more than 6 percent in early trading. Nikkei futures tumbled again, dipping 1,250 yen below the 3 p.m. closing level. CIS, home in his pajamas, finally cashed out his short position. His profit had hit $27 million.

“Too Delicious”

There was still more money to be made from the panic though. Some investors that night were willing to pay a hefty premium for options that protected against the Nikkei crashing below 10,500. That would be a collapse of almost 40 percent. In CIS’s view, these investors were looking to buy insurance against a near impossibility.

He was happy to take the other side of that trade. The contracts were worth another $250,000 to him. He made the first deal within 10 seconds of what would prove to be the market’s bottom at 10:34 p.m.

“Too delicious,” he tweeted.

About an hour later, as he became more confident in a rebound, he started buying Nikkei futures. Now the play was the opposite of the short bet he’d started the day with. By 1 o’clock Tuesday morning, he’d accumulated 970 contracts, a $145 million wager that the market would start to climb.

He made one more trade before bed: a few more option contracts sold to straggling panickers. Those were worth $6,250. By now, at 1:40 a.m., he was a rich man stooping to pick up pennies.

He dashed off a last tweet at 2 a.m. “What a day. Still holding on to all my buys,” he wrote. “Time to sleep.”

The Rebound Trade

CIS returned to Twitter five hours later. Nikkei futures opened at about 18,000 and slowly recovered. Early that afternoon, he closed out his long position.
At the coffee shop later that day, CIS was pretty nonchalant for man who had made tens of millions of dollars in less than 24 hours. For him, it was just one trade out of thousands he would make this year.

“When a trade goes right I feel like bragging a little, but I don’t get on Twitter to talk about it if I lose,” he said with a laugh.

http://www.bloomberg.com/news/articles/2015-08-28/while-many-panicked-japanese-day-trader-made-34-million
Edited by Terry, 28 Aug 2015, 11:44 PM.
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Ex BP Golly
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Wait till he hears about Australian property. He will make a fortune!
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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Terry
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Ex BP Golly
29 Aug 2015, 01:58 AM
Wait till he hears about Australian property. He will make a fortune!
CIS would be considered a "bear" because he bet against the Nikkei falling. Would that mean bears are more willing to take risks?
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peter fraser
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Terry
29 Aug 2015, 01:51 PM
CIS would be considered a "bear" because he bet against the Nikkei falling. Would that mean bears are more willing to take risks?
There are really two types of bears.

The first is more like a bull but going in reverse.

The second is busy avoiding risk due to fear.

They are not even similar.
Any expressed market opinion is my own and is not to be taken as financial advice
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Terry
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peter fraser
29 Aug 2015, 02:42 PM
There are really two types of bears.

The first is more like a bull but going in reverse.

The second is busy avoiding risk due to fear.

They are not even similar.
That doesn't make sense. People who invest in property do so because it's seen as a low-risk investment with a probabilistic expectation that prices will rise. That is essentially the most risk-averse position and commonly referred to in the suburbs as "fear of missing out."
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peter fraser
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Terry
29 Aug 2015, 02:50 PM
That doesn't make sense. People who invest in property do so because it's seen as a low-risk investment with a probabilistic expectation that prices will rise. That is essentially the most risk-averse position and commonly referred to in the suburbs as "fear of missing out."
As a class residential property is low risk, but the risk taken by each individual borrower can vary greatly.

Most of the housing bears that I come across are very risk averse, indeed so much that they consider buying a house as being "too risky" - an activity that you have just labelled as low risk.

My experience tells me that there is another category. That is the group of people who would like to buy but can't afford the deposit or the repayments (or both) but on these forums all I meet are bears who swear they are on $200K pa or more and have $400K in savings. Maybe the people that I run into in my working hours just don't blog on these sites.

Edited by peter fraser, 29 Aug 2015, 04:40 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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Terry
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peter fraser
29 Aug 2015, 04:40 PM
As a class residential property is low risk, but the risk taken by each individual borrower can vary greatly.

Most of the housing bears that I come across are very risk averse, indeed so much that they consider buying a house as being "too risky" - an activity that you have just labelled as low risk.

My experience tells me that there is another category. That is the group of people who would like to buy but can't afford the deposit or the repayments (or both) but on these forums all I meet are bears who swear they are on $200K pa or more and have $400K in savings. Maybe the people that I run into in my working hours just don't blog on these sites.
Property is not low risk. That is the whole point. Risk is dynamic and depends on many factors. The simple fact that a property represents the largest financial responsibility for a typical household, then it is clearly obvious that the risk is high. And when society is transfixed on property as savings, financial and wealth instruments, the risk element is raised. Risk is not mitigated because the govt works in tandem with the finance and property industries. Risk is simply shifted, usually on to the taxpayer.
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peter fraser
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Terry
29 Aug 2015, 04:53 PM
Property is not low risk. That is the whole point. Risk is dynamic and depends on many factors. The simple fact that a property represents the largest financial responsibility for a typical household, then it is clearly obvious that the risk is high. And when society is transfixed on property as savings, financial and wealth instruments, the risk element is raised. Risk is not mitigated because the govt works in tandem with the finance and property industries. Risk is simply shifted, usually on to the taxpayer.
As an asset class it is a low risk investment, but highly leveraged property buyers take on the risk of that leverage.

Still a lot less risky than shares on a margin loan though.
Any expressed market opinion is my own and is not to be taken as financial advice
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Terry
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peter fraser
29 Aug 2015, 09:28 PM
As an asset class it is a low risk investment, but highly leveraged property buyers take on the risk of that leverage.

Still a lot less risky than shares on a margin loan though.
Traders can quantify exactly how much they can afford to lose on a trade before they even start hedging. Property purchasers can also estimate how much they can afford to lose, but are less likely to do so considering that most traders with a professional disposition are skilled in risk management. The big difference is that property investors are dealing with their major life expense and paying for that privilege. Relatively speaking, they stand far more to lose, which is why property busts are a big deal.
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peter fraser
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Terry
30 Aug 2015, 12:22 AM
Traders can quantify exactly how much they can afford to lose on a trade before they even start hedging. Property purchasers can also estimate how much they can afford to lose, but are less likely to do so considering that most traders with a professional disposition are skilled in risk management.
So can you explain why the majority of these superior beings eventually lose their shirts.

http://www.travismorien.com/FAQ/trading/futradersuccess.htm

Are you really certain that traders manage risk better than an ordinary house buyer? Where is your evidence?
Any expressed market opinion is my own and is not to be taken as financial advice
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