Tuesday, January 6, 2009

German Billionaire Commits Suicide Following Short Position Losses

I have seen or heard about more traders being carried out on stretchers because of losses based on trading strategies that have unlimited potential for losses, but limited potential for profits, than for any other reason. A pure short position is this type of unlimited risk strategy.

Adolf Merckle committed suicide following millions of euros in losses resulting from a short sale in Volkswagen shares.

A short squeeze in Volkswagen shares, which began in October, resulted in a massive rally that sent VW's common shares up more than 250%. Porsche announced in October that it had increased its equity stake in VW to 42.6% from about 35%, and more crucially, that it had options to buy another 31.5% of VW.

Thus, Merckle's portfolio was figuratively hit by a freight train. And, according to the German newspaper Die Welt, Merckle, followed this up by literally stepping in front of a freight train near his home in southwestern Germany.

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