Uk Options In Turmoil After 1bn Bet

The biggest-ever options trade was placed on Londons International Financial Futures Exchange (LIFFE) on Tuesday by a mystery investor who bet a record 1 billion on a 15 per cent drop in the FTSE 100 index of leading British shares.

Market insiders said they were sceptical about press speculation that the party behind the bet was probably one of Britains major life assurance companies.

Some dealers said it was more likely that one of the large US hedge funds was behind the deal, acting through a local trader. Most agreed the investors identity was likely to remain one of the industrys best-kept secrets.

 

Dealers said the independent trader who carried out the transaction was a local trader who floor brokers for institutions. The trader is known to have links with life assurance clients. He runs a very cheap execution-only service for institutions, said the trader. For a deal this size the commission would have been very high, so the client has looked for someone cheap to carry it out.

Sources close to the market commented that the mystery client was likely to be betting on a shake-out in the stock market around general election time, when equities are likely to be vulnerable to short-term volatility.