Legendary trades

Ironically, many of the most spectacularly successful trades of all time were made of one of the so called ‘black’ days, where the market saw a huge decline.

Black Monday refers to Monday, October 19 1987, when the Dow Jones Industrial Average (DJIA) fell 22.6% – the second largest one day decline in recorded stock market history.

Paul Tudor Jones, one of the top commodity traders of the 20th Century, was trading from his New York based hedge fund.

Jones’ chief economist, Peter Borish had produced a model that suggested that the stock market of the time in many ways resembled that of the late 1920’s.

On the Friday prior to Black Monday the stock market printed record volume to the downside, just as it occured two days before the great crash of 1929, Black Thursday.

Jesse Livermore, widely seen the greatest trader of all time, had his best day ever, making an estimated $100 million on Black Thursday.

On Monday morning Paul Tudor Jones began to sell S&P 500 futures. He had experience with the futures market having started out as a clerk at the New York Cotton Exchange.

Jones began to cover his short positions throughout the day and actually ended up in a long position for the rebound that occurred. Jones’ reputation on Wall Street was such that the market rebound was in part caused by word getting out that he was covering his short positions.

Black Friday of 1869 was brought about by Jay Gould’s attempt to corner the gold market. Gould’s intent was that the increase in price of gold would increase the price of wheat so that western farmers would sell, causing large shipments east, thereby creating freight business for the Erie railroad (which he owned).

Gould persuaded US president Ulysses S. Grant to restrict the supply of gold while buying up as much of the commodity that he could. Gould was able to liquidate his position before Grant realized what he was up to.

Black Wednesday refers to September 16th 1992. George Soros had taken a massive $10 billion short position in the British pound. The pound was under pressure due to the threat of rejection from the European Monetary Union.

Soros profited from the Bank of Englands reluctance to either raise its interest rates or to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency.

By the end of Black Wednesday the Bank of England was forced to withdraw the currency out of the European Exchange Rate Mechanism and to devalue the pound sterling. Soros consequently made an estimated US$ 1.1 billion on his short position, and earned the title of the man who broke the Bank of England.