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How the Archegos Capital Meltdown Helped Morgan Stanley

There were mostly losers in last month’s Archegos Capital meltdown. But Morgan Stanley was a rare winner. It knew exactly what it was doing.

Stock Sell Chart

There were mostly losers in last month’s Archegos Capital meltdown. But Morgan Stanley was a rare winner - and it screwed some big hedge funds in the process.

Over the past several years a common refrain is that Wall Street always screws the little guy. That line of thinking isn’t entirely wrong, as Wall Street trading firms and banks do all they can legally, and maybe a touch illegally, to make as much profit as possible. However, late last month Morgan Stanley screwed the hedge fund community as well, reminding everyone that there are no friends on Wall Street.

Here are the details:

Three weeks ago I noted large put buying in Chinese Internet stocks. For those not familiar, a put buy is a bearish trade, looking for the stock to fall. Below were some of those trades that I am referring to, copy and pasted from my Daily Order Flow list:

March 24, 2021

Buyer of 5,000 IQIYI (IQ) April 20 Puts for $0.57 – Stock at 23.5
Buyer of 2,500 Weibo (WB) April 46 Puts for $0.90 – Stock at 51
Buyer of 8,500 Vipshop (VIPS) April 35 Puts for $1.25 – Stock at 38.4
Buyer of 5,000 (JD) April 70 Puts for $0.75 – Stock at 79

March 25, 2021
Buyer of 5,000 Tencent Music (TME) April 23/19 Bear Put Spread for $1.05 – Stock at 22


As we later found out many of these stocks were owned by Archegos Capital Management, which was a super discrete “hedge fund” that was forced to liquidate billions of dollars in stock from March 24 to March 26. In those two days of liquidation, it has been reported Archegos lost a whopping $20 billion!

Archegos Capital Meltdown Helped Morgan Stanley

However, that isn’t where this story ends; in fact, this is where it starts to get interesting. As was reported by CNBC …

“Morgan Stanley sold about $5 billion in shares from Archegos’ doomed bets on U.S. media and Chinese tech names to a small group of hedge funds late Thursday, March 25.

“Morgan Stanley had the consent of Archegos to shop around its stock late Thursday, these people said. The bank offered the shares at a discount, telling the hedge funds that they were part of a margin call that could prevent the collapse of an unnamed client.

“But the investment bank had information it didn’t share with the stock buyers: The basket of shares it was selling was merely the opening salvo of an unprecedented wave of tens of billions of dollars in sales by MS and other investment banks starting the very next day.”

Essentially, Morgan Stanley knew that Archegos was blowing up very fast, didn’t want to take a loss themselves, and was trying to unload the stock on the hedge funds. However, what they didn’t tell these other funds was that the initial 20-50 million shares of IQ, VIPS and TME that were being sold was just the first wave of similar-sized sales. Basically, Morgan Stanley “screwed” these hedge funds as a result of the Archegos Capital meltdown.

Now, where the put buys come into play is another layer to this story.

Judging by the times/dates that the puts above were purchased, it appears either Morgan Stanley, or another fund, caught a whiff of the stock selling that was to come, and started initiating bearish bets against those stocks—therefore “screwing” anyone who was caught buying any of these stocks that were destined to tank.

The big takeaway: Wall Street can be a dirty place, and it’s not always just the little guy that gets beat up by the smart money.


Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.