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The strategy is intended to position hedge funds to thrive in all market conditions.
It seems that the sharp drop of the past two weeks has left traders in a position where hedging at this point is not worth the risk in the face of a market bounce.
"They can protect good positions by hedging something else," he said.
The S.E.C. requires only that investors disclose long positions, so the public doesn't necessarily know if a position is hedged or perhaps is being magnified through another instrument.
In theory, Goldman could have sold the position or hedged it, but for some reason, it chose not to.
JPMorgan said it initially used the position to hedge its exposure to the broader economy - and in theory hedging is exempt under the rule.
Buffett has acknowledged the volatility of currency trading, but says he needs the position to hedge against Berkshire's substantial U.S. dollar exposure.
Another 4% of the portfolio was invested in short futures, and 25% of the portfolio's long position was hedged by the put options.
That manager might enter a CDX position to hedge part of the risk she's courting (e.g. buying protection/insurance).
By taking large leveraged positions, hedge funds benefit handsomely when things go right.
The value of the short positions hedge funds have taken in FTSE 100 companies is £17.8bn, according to research by Markit.
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