Hedge fund manager Boaz Weinstein stated that his derivatives trade on Credit Suisse might generate significant returns if the bank defaults on its debts.
Last year, a group of speculators used short selling to increase bearish bets on Credit Suisse.
Weinstein's dual-long and short position on Credit Suisse's credit default swaps (CDS) may offer insurance protection if the bank defaults on its debt.
Weinstein's position reflects the importance of hedge funds using volatile markets to generate returns in the financial industry.
Hedge fund manager Boaz Weinstein believes that his Credit Suisse derivatives trade could win big if the bank defaults on its debt, but he doesn't believe this will happen.
A significant increase in bearish bets through short selling by a group of speculators occurred last year, believing that the bank needed additional capital to strengthen its balance sheet because of unsubstantiated social media reports on its financial health.
Borrowing just over one-fifth of Credit Suisse's stock by hedge funds and speculators occurred as of October 31st, the highest level since 2006, according to S&P Global Market Intelligence.
Weinstein stated that he holds both a long and short position on the bank's credit default swaps (CDS).
CDS are derivative contracts that offer insurance protection and pay out when a company defaults on its debt.
Weinstein's position reflects the importance of hedge funds using volatile markets to generate returns.
Hedge funds such as Millennium, Renaissance, and Point72 Asset Management have all suffered from the recent volatility in the financial markets.
Weinstein's position is not alone, pointing to the increasing importance of credit default swaps and other similar mechanisms.
Barington Capital calls for change in Credit Suisse's leadership and strategy, demanding that the bank split into an investment bank and a wealth management company.
Credit Suisse recently fined $90m after the US Securities and Exchange Commission found that it misrepresented how it manages risk in its private banking business.