On November 29, 1993, the price of the NYMEX crude oil futures contract jumped close to one dollar, opening at $16.11, a drop of as much as 5%. This decline caused heavy losses to the bulls, and also made some short speculators choose to close their positions, they are very satisfied with the current profits, and the main force of the contract in January 1994 has not been long in the field, in this case choose to leave the market without worrying about the next family to take over.

Naturally, some people laugh and some cry, and the bulls suffer heavy losses. Unwilling to fail, they launched a fierce attack in the intraday, but the day did not fulfill their wishes, and the intraday high rose to $16.20, while the lowest price probed to $15.78, and it was obvious that the bears firmly held the advantage. Although the bulls tried to pull the oil price up to $16.00 at the end of the session, the bears in the market were too fierce, and the final oil price closed at $15.97, only a line away from $16.00, but the gap between this point in the price can never be crossed on this day.

"Zhong Sheng, that's all for today, what are you going to do tomorrow?" Despite the 12-hour time difference, it was already more than 3 a.m. in Hong Kong, and Andrew dutifully called. He had cleared all his positions on this day, and even closed his positions with Liao Xiaohua, and both of them made more than double the profit on the oil finger, which made the two of them happy on the phone for a while.

"Don't worry, today is fully digesting systemic risk, and I believe that there will be a large number of short positions in the market, although these people are not the main force. But to a certain extent, it will disrupt the line of sight, so that investors have a false impression of the development that follows, thinking that the bears will stop there! Zhong Shi calmly stated his analysis. After the market closes today, it will be the turn of the bulls to start worrying about the settlement funds, if they do not raise enough funds to maintain their positions before the market opens tomorrow, then they will be forced to liquidate, and the market will still be a Xiangxia trend.

When a trend has already formed, the market may form a reversal on the market within a day or two, but anyone with a little experience understands it. That could be a spoiler for ultra-short speculators. Or the death throes of the wrong party, in which case just keep the pressure on the wrong party and keep the trend going. Then they will soon throw in the towel.

This downward trend is now taking shape in crude oil futures contracts. There is even a price difference with the spot market. This is a relatively rare occurrence. Generally speaking, the price in the spot market and the price in the futures market remain relatively consistent, but this month's contract is still some time away from delivery. Add to this the fact that the market is extremely divided, so it is not surprising that the two sides are at odds with each other in terms of prices.

"Then continue to hold it and see the development of the market outlook?" Andrew asked a little timidly. In his opinion, it is the safest to close all positions at this stage, even if it raises oil prices, after all, the money that falls into the pocket is the most stable.

During this time, he looked at the constantly beating numbers on the computer screen, which was a real billion dollars, with fluctuating profit figures. He woke up more than once in the middle of the night, dreaming that his position was blown up, and all his net worth was wiped out overnight, and he was even sued in court for arrears. For Zhong Shi's funds, he didn't even dare to dream of it, you must know that it is a billion dollars, even after filing for bankruptcy, it is estimated that he will not want to get out of bankruptcy for the rest of his life.

He couldn't believe it anyway, why did Zhong Shi dare to be the shopkeeper in the middle of the operation, and let him and Li Mingyang complete all the operations, you must know that each of the minimum price changes of these positions corresponds to a loss of around one million dollars, and the two of them can't eat or sleep during this time, and they really lost a whole circle.

Zhong Shi thought about it for a minute, and then decided: "Close thousands of positions every day, and exit the market without affecting the price." When he said this, he was extremely unconfident, you must know that he now holds a short position of more than 100,000 hands, even if he closes 10,000 hands a day, it will take ten trading days, in this case, the market will definitely find a change in the number of HSBC seats, and eventually the bulls will definitely take advantage of this to raise oil prices and eat away at his floating profits step by step.

But there is no way to do it, who made him the heaviest big short in the market!

At the end of the day's trading, NYMEX announced the changes in the positions of each member seat as usual, and the HSBC seat reduced its holdings by 15,013 lots to become the biggest attraction. Prior to this, the financial media had been paying attention to the changes in HSBC's seat holdings, because there was a huge shili short active here, making HSBC said to be the culprit in suppressing oil prices, while large oil companies in countries such as Indonesia and the United Kingdom were speculated to be the real holders behind this short stock.

When the news of HSBC's reduction broke, the market's first reaction was that the funds were about to be liquidated, after all, they had already made hundreds of millions of dollars in profits, which is even equivalent to the total annual income of some large multinational companies. Therefore, although the open interest increased by more than 10,000 lots on this day, it was also selectively ignored by analysts.

As soon as the crude oil futures index opened on November 30, it jumped to $16.04, and the target that the bulls did not achieve in the previous trading day was so easily achieved under the influence of rumors that the bears had a profit to leave. The market was full of optimism, but the bears gave this sentiment a hard blow, although the trading volume was the same as the previous trading day, showing that the market was fully active, but the oil price finally closed at $16.04, no rise or fall, although there were repeated intraday, but the two sides generally played a tie in attack and defense, and oil prices did not change in the end.

At the end of the day's trading, the market was surprised to find that the HSBC seat had reduced its holdings by 10,000 contracts again, which means that the shorts in this seat are gradually reducing their holdings, and the intention to exit the market is very obvious. What the market does not understand is that in addition to reducing its holdings on the short side, HSBC seats have increased its holdings of thousands of contracts on the long side at the same time.

Not only market participants, but even professional media are speculating whether HSBC seats are going to lock in profits or bullish on oil prices in the future. Regardless, a reduction in front-month contracts is a boon for bulls. Then, on the first trading day of December, oil prices finally rose 0.39% to settle at $16.10 amid continued bears' positioning.

In the crude oil futures market, Zhongshi reduced his holdings of 30,000 crude oil futures contracts in two days, bringing his position to 100,000 contracts. In addition to crude oil contracts, diesel and other contracts have also been sold out, and these contracts do not occupy a large share of the corresponding market, so it did not take much effort to close all of them. In the process, more than $125 million in profits were pocketed, which is real money, not a figure that changes from time to time.

A total of 150,000 contracts took up less than $300 million in margin, with another $700 million used as reserve margin. Now that one-third of the contracts are closed, they have made a profit of nearly half of the principal, not counting the 100,000 contracts with a floating profit of more than $300 million, which can be said to be very good.

Just when the market thought that the bears in the HSBC seat would continue to reduce their holdings, a news about the bulls began to circulate in the market, and the content was extremely shocking, even alarming NYMEX.

The news is that a company called German Metal Refining and Marketing has suffered huge losses in the crude oil market and has been unable to pay the losses caused by its huge position, even affecting its parent company, German Metal. The company entered into a 10-year long-term supply contract to supply gasoline, heating oil and jet fuel to a U.S. oil retailer at a relatively fixed price, with an option-like clause that the U.S. oil retailer would be entitled to demand that the undelivered portion of the oil price difference be converted into cash payments if the price of the shijie oil was higher than the contract price for a period of 10 years.

In order to avoid risk, the German metal refining and marketing company has constructed a long position of 55,000 contracts in crude oil on the NYMEX market, as well as hedging swap contracts in the OTC market. Because it signed the contract to deliver oil products in regular fixed amounts, and the other part to be specified by customers at any time, they could only make a fuss about the spot market and front-month contracts, and when OPEC announced that it would not cut production, crude oil futures plummeted, causing them to lose a lot of money in the corresponding market, including at least $200 million on NYMEX.

These contract positions were opened in the summer, when the price of oil was hovering around $18, and the average price of their positions could be higher than that. After establishing these positions, Deutsche Metals originally hoped to use the rollover to hedge the risks of the bunkering contract, but who would have thought that the systemic risk would explode and cause them heavy losses all at once.

And that's not even the most lethal, their swap contract losses on OTC are even worse, according to insiders, their position on swaps is double that on NYMEX, which puts their overall losses at least around $600 million.

Soon, it was confirmed that in order to prevent default, NYMEX required German Metal to provide double margin, making them have to pay another $50 million in margin at once, and at the same time canceled their hedging exemption qualifications, which made German Metal have to close a large number of positions while paying for the huge losses brought by the financial market.

This can be described as a house leak coincided with overnight rain, German metals had to close long positions in the market, and at the same time pay the corresponding losses, it happened that HSBC's seats were gradually closing their positions, so they began to contact the shorts who were interested in closing their positions with the help of notifying the exchange, including Zhongshi.

No matter which company loses so much money all at once, it is likely that its cash flow will collapse, and the ensuing result can be imagined, which is to file for bankruptcy protection. The market has already seen the news of the imminent bankruptcy of German metals, which also makes them have to quickly look for the possibility of closing their positions, and this is a good time to take advantage of the fire. (To be continued......)

PS: Thank you very much for the tip from Sov, a book friend! And a special thank you for making me think about the continuous tipping of this book!