JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES

Source: See 07/16/2012 FDIC presentation, “What Happened in JP Morgan’s CIO? A Primer,” at 4,
FDICPROD-0036009.
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But posting gains in its IG holdings by driving down the premium prices (credit spreads),
was not enough, because the CIO’s other holdings, such as its short positions in the high yield
indices, were posting losses even more quickly. In addition, the IG9 gains themselves were
under pressure. One journalist described the CIO’s IG9 trading strategy as playing a game of
“chicken” with its counterparties, most of whom were hedge funds. As Mr. Iksil amassed an
increasingly enormous IG9 position:
“Other people in the markets - like hedge funds and other traders - thought Iksil
was being ridiculously overconfident. Waiting for the giant Iksil's [bet] to fail, the
anti-Iksil team took the other side of the bet. The rival traders bought creditdefault
swaps on the Index. They also bought protection on the underlying
corporate bonds to influence the value of those as well. Their hope was that Iksil's
bet would go down in value; then he would have to run to them to buy creditdefault
swaps to cover his rear and keep his bet even. They outsmarted Iksil. As