The Fear Index: The day has come to make a real killing...

THEY gathered around the trading screen in Execution. One of the quants vacated his desk to give them a better view.

“So, this is VIXAL-4 in operation,” said Hoffman. He stood back to let the investors get closer to the terminal. He decided not to sit: that would have let them see the wound on his scalp. “The algorithm selects the trades. They’re on the left of the screen in the pending orders file. On the right are the executed orders.” He moved a little nearer so that he could read the figures. “Here, for instance,” he began, “we have…” He paused, surprised by the size of the trade; for a moment he thought the decimal point was in the wrong place. “Here you see we have one and a half million options to sell Accenture at fifty-two dollars a share.”

“Whoa,” said Easterbrook. “That’s a heck of a bet on the short side. Do you guys know something about Accenture we don’t?”

“Fiscal Q2 profits down three per cent,” rattled off Klein from memory, “earnings sixty cents a share: not great but I don’t get the logic of that position.”

Quarry said, “well, there must be some logic to it, otherwise VIXAL wouldn’t have taken the options. Why don’t you show them another trade, Alex?”

Hoffman changed the screen. “Okay. Here – you see? – here’s another short we’ve just put on this morning: twelve and a half million options to sell Vista Airways at seven euros twenty-eight a share.”

Vista Airways was a low-cost, high-volume European airline, which none of those present would have dreamed of being seen dead on.

“Twelve and a half million?” repeated Easterbrook. “That must be a heck of a chunk of the market. Your machine has got some balls, I’ll give it that.”

“Really, Bill,” said Quarry, “is it that risky? All airline stocks are fragile these days. I’m perfectly easy with that position.” But he sounded defensive, and Hoffman guessed that he must have noticed that the European markets were up; if a technical recovery spread across the Atlantic, they might be caught up by a rising tide and end up having to sell the options at a loss.

Klein said, “Vista Airways had twelve per cent passenger growth in the final quarter and a revised profits forecast up nine per cent. They’ve just taken delivery of a new fleet of aircraft. I don’t get the sense of that position, either.”

“Wynn Resorts,” said Hoffmann, reading off the next screen. “A million-two short at one hundred and twenty-four.” He frowned, puzzled. These enormous bets on the down side were unlike VIXAL’s normal complex pattern of hedged trades.

“Well that one truly is amazing to me,” said Klein, “because they had Q1 growth up from seven-forty million to nine-oh-nine, with a cash dividend of twenty-five cents a share, and they’ve got this great new resort in Macau that’s literally a licence to print money – it turned over twenty billion in table games in Q1 alone. May I?” Without waiting for permission, he leaned past Hoffmann, seized the mouse and started clicking through the recent trades. His suit smelled like a dry-cleaning store; Hoffman had to turn away. “Procter and Gamble, six million short at sixty-two… Exelon, three million short at forty-one-fifty... plus all the options… Jesus, Hoffmann – is an asteroid about to hit the earth, or what?”

Reprinted with permission. The Fear Index by Robert Harris is published by Hutchinson, £18.99.