The Wall Street Journal reported Friday that the wager was assembled over the span of several months and was carried out by multiple firms, including Goldman Sachs Group Inc. and Morgan Stanley. The bet itself is composed of “put options,” which are contracts that give the owner the right to sell an asset at a predetermined price, also known as a strike, by a certain date.
The report noted that the Bridgewater options’ expiry date is set in March, and that the investment company paid an estimated $1.5 billion for the put options contracts, which happen to be linked to roughly $100 billion worth of the indexes, sources familiar with the matter told the Journal.
The matter of how much Bridgewater stands to gain from the wager is dependent on various factors, especially time.
According to Investopedia, the worth of a put option is highly contingent on the amount of time left until the contract’s listed expiration date. “The value of a put option decreases as its time to expiration approaches due to time decay, because the probability of the stock falling below the specified strike price decreases,” the site explains.
However, as the Journal points out, stock indexes would not necessarily have to fall below the designated strike price in order for Bridgewater to see any profits from its bet, since the firm could easily decide to simply sell off contracts that are increasing in value.
The matter of why Bridgewater made the wager in the first place is presently unclear, as the firm has declined to offer an explanation of its trades.
“Though we won’t comment on our specific positions we do want to make two things clear,” Bridgewater said in a statement to CNBC. “First, the way we manage money is to have many interrelated positions, often to hedge other positions, and these change often, so that it would be a mistake to look at any one position at any one time to try to deduce the motivation behind that position.”
“Second, we have no positions that are intended to either hedge or bet on any potential political developments in the US,” the firm added.
News of the move comes a week after Ray Dalio, Bridgewater’s billionaire founder, told eventgoers at the annual National Committee on US-China Relations gala in New York that an all-out capital war was on the horizon.
“There is a trade war, there is a technology war, there is a geopolitical war, and there could be capital wars. And how that’s approached is going to determine what our futures are like,” Dalio said at the November 14 event. “I honestly don’t know how it will be approached. We want to be optimistic.”
That event, however, was not the first time that Dalio had made such remarks. The New York native made similar comments in October while speaking on a panel on the sidelines of an International Monetary Fund and World Bank meeting.