A $50 million margin call? I'll short Wall Street.

Chapter 93 Inventory

July 6th. Sunday. 9 PM.

270 Park Avenue. Farstar Capital.

The lights in the trading room were half off, and the sweltering July heat seeped in through the cracks in the windows, the air conditioner humming in response.

Lu Ze walked out of his office and sat down in the chair in the center of the trading room.

"Go through it once."

Isabella's tablet was already lit. Matt was next to her, his risk control panel on. Lin Tao sat at his workstation on the outer edge; no one had called him in, nor had anyone asked him to leave.

"Go through it according to the timeline," Lu Ze said.

Isabella nodded. She began reading from the first line.

"In April, Bear Stearns netted $513 million. This money was split into three parts and launched simultaneously."

"The first part, about 200 million, is a long position in crude oil. 20 million is held in ETFs through Goldman Sachs as cover, 80 million is in futures with 5x leverage, and 60 million is in call options—strike price 120 to 130, expiring in July."

"The second portion, approximately 100 million, will be channeled through nine ISDA channels to purchase a basket of financial CDS. The underlying assets cover Lehman Brothers, Citigroup, AIG, Fannie Mae and Freddie Mac, Morgan Stanley, Goldman Sachs, and others. The notional principal is approximately 4.1 billion."

"The third portion, the remaining amount of approximately 200 million, will be used as a margin reserve and operating cushion."

Lu Ze did not interrupt.

"Early June. First batch of oil positions liquidated. Sold in batches within the 130-140 range. Options profits reached 1.116 billion, and stocks and futures profits reached 75 million. Total approximately 1.2 billion."

"These 1.2 billion were immediately redeployed."

Isabella turned to the next page.

"Additional CDS, 200 million in option premiums, and the total notional principal across nine channels have driven up the price."

S&P put options, 600 million, in three tiers – 200 million for strike price of 1200, 200 million for strike price of 1100, and 200 million for strike price of 900.

VIX call options, 200 million, strike prices 40 and 50. Crude oil put options, 200 million, strike prices 80 to 60.

"The total is 1.2 billion, roughly equivalent to the profits from the first batch of oil sales."

She glanced at Lu Ze.

"End of June."

Isabella turned to the last page. "The remaining oil positions are all cleared out. The second batch and the initial holdings combined netted approximately 1.3 billion."

"One billion of that was leveraged through JPMorgan Chase in long-term government bonds."

"With the remaining approximately 300 million, we bought deeper put options—crude oil strike prices were pushed below 60, and we also added put options on industrial metals such as copper and aluminum."

Isabella closed the tablet.

"These are all of Farstar's current holdings."

The trading room was silent for a few seconds.

Lin Tao mentally went over the numbers he had just heard.

Money that came in: Bear Stearns $500 million, oil totaling $2.5 billion. Approximately $3 billion in total.

Money out of the portfolio: $200 million in crude oil long positions (already recovered), $300 million in CDS, $600 million in S&P 500, $200 million in VIX, approximately $500 million in put options on crude oil and industrial metals, and $1 billion in Treasury bonds. This is in addition to the continued depletion of funds from exchange-traded options.

Almost all of them were thrown out.

It's all options and CDS—things other funds use as safety nets, but Farstar is the main course.

"Exchange-traded options are not purchased all at once. The exchange-traded portions of the S&P and VIX are continuously being added, taking a small amount of market activity each day to avoid attracting attention. This requires a certain amount of liquid capital as a buffer for continuous consumption."

This portion of several hundred million is still being consumed. Because the deep-money out-of-the-money pool is relatively small, the process is relatively slow.

She glanced at the numbers.

At this moment, Yuanxing only has about two or three hundred million in idle cash left in its accounts.

"Matt,"

Lu Ze spoke up, "If all directions go to zero—CDS is useless, S&P Put is useless, VIX Call is useless, crude oil Put is useless—what will we have left?"

Matt didn't hesitate. He calculated this number every day.

"The government bond position can be liquidated on the same day, and after deducting leverage costs, approximately 900 million can be recovered. This, combined with idle cash and margin balances in the custodian account."

He looked at Lu Ze.

"If all offensive positions were wiped out, Farstar's remaining net assets would be just over one billion."

Billion.

From 5.12 million to 3 billion and then to 1 billion.

If the bet is right, the 1.3 billion in ammunition will inflate into an unimaginable number.

If the bet goes wrong, Farstar still has a billion dollars. It won't die. But it will shrink from a behemoth that just shocked the entire Wall Street into a medium-sized, inconspicuous hedge fund.

This is the odds structure for this betting game.

The upper limit of the loss is fixed—1.3 billion in royalties plus some time value depreciation.

The potential profit ceiling is open—it depends on where the market falls, how much panic inflates, and how many of those "impossibilities" will actually become reality.

Asymmetry.

This is the core philosophy that Lu Ze has been adhering to since day one: when losing money, he loses a limited amount of premiums; when making money, he earns an unlimited amount of profit.

You don't need to be right in every direction. Just being right in one direction is enough to cover all the losses.

And if all directions are correct—

The benefits are terrifying.

Having access to the script of history provides a higher degree of certainty than any other trader; not "gambling" would be a waste.

Looking at the numbers, Lin Tao suddenly thought of a question. He hesitated for a moment, but still asked it.

"Boss, there's something I've been wondering about."

Lu Ze glanced at him.

"We made over $500 million from Bear Stearns in March. Everyone on Wall Street knows that."

Lin Tao's voice tightened, "Now we're taking 1.3 billion to buy doomsday insurance that the S&P 500 will fall to 900 and crude oil to 60. Don't those investment banks' trading desks think about this? This guy won the bet last time, and now he's back again—"

"They thought about it."

"That's what Isabella said. Extremely brief."

"After thinking it over, I calculated the premium income and then accepted the application."

Lin Tao looked at her.

"In their model, the probability of these things we buy being triggered is less than 0.5 percent."

Isabella spoke as if she were reading a risk control report she had seen countless times.

"Selling it to us is like making 1.3 billion in premiums for free. They remember Bear Stearns, but that was the life or death of one company, an isolated case. A 30% drop in the S&P 500 is a collapse of the entire economy—they don't believe it."

Lin Tao wanted to ask more questions.

"Moreover, the way they built their positions gave them no reason to be wary."

Isabella continued, giving him no room to interject, "CDS is a macro basket of a dozen or so underlying assets. S&P Puts are spread across three tiers and multiple expiration dates. Crude oil moves through several channels. Each transaction looks normal on its own."

Lin Tao shut up.

Matt added a sentence from behind the risk control panel.

"Market makers don't care who the buyers are. What they care about is whether their Greeks are being settled."

The trading room fell silent again.

Lu Ze stood up and walked to the floor-to-ceiling window.

Outside the window, Manhattan is ablaze with countless lights in the summer night. Among those lights are Goldman Sachs' trading desk, Morgan Stanley's risk control system, and Deutsche Bank's algorithmic servers. They are all running. They are all using mathematics to prove that the world is safe.

Tomorrow morning at 8:00 AM, a 347KB Word document will be converted into a PDF and uploaded to a webpage that receives fewer than 30 visits per day.

Lu Ze turned around.

"Is everything confirmed?"

"It's all confirmed," Isabella said.

"Matt?"

"All nine channels are functioning normally. Margin is sufficient. No abnormalities."

"It will be sent out at eight o'clock tomorrow."

He picked up his coat from the back of the chair. He paused as he passed Lin Tao's workstation.

"Go back to sleep."

Then he left.

Lin Tao watched Lu Ze's figure disappear into the corridor.

He glanced down at the screen. The S&P 500 closed at 1252. WTI crude oil was at $145. The VIX was at 23.