Wednesday 2018-05-02

Amherst Holdings' hack reminded me of MagnetarCDOs

A couple of people have recently reminded me of a terrific 2009 trade in which Amherst Holdings sold a lot of CDS on a subprime mortgage bond deal and then paid off all of the underlying mortgages, rendering the CDS worthless. "At one point, at least $130 million of bets had been made on the performance of around $27 million in securities," with the CDS selling for around 80 or 90 cents on the dollar, so there was plenty of room to profit from this simple strategy.
-- Matt Levine at Bloomberg