Goldman Sachs Group Inc. (NYSE: GS) lost money during the second quarter by betting that volatility would drop during the second quarter as equity price swings moved to a 12 month high.
“Primarily in response to our client needs, our equity derivatives business was short volatility entering the second quarter and posted poor results,” said Chief Financial Officer David Viniar said in a conference call with the media this morning. The firm didn’t specify the size of the loss from the bet or the overall results from the company’s equity derivatives group responsible for the business.
Investors can measure market volatility by looking at Chicago Board Options Exchange Volatility Index (VIX). The index began at the second quarter at about 17.5 and rose to about 45.8 during the month of May before ending the quarter at 34.54. The index measures the cost of options as insurance against declines in the S&P 500.
Goldman Sachs Group Inc. (NYSE: GS) posted record equity trading revenue last year, but saw a 62% decline compared to Q2 2009 with revenue of $1.21 billion. Clients of Goldman Sachs Group Inc. (NYSE: GS) wanted to hedge against increased volatility, Viniar said on the call. “We took the other side because you know we deal with our clients all the time,” he said. “We had that position going into the quarter and volatility just spiked.”
The firm reported second quarter earnings today which fell from 82% a year ago as revenue from trading stocks, fixed-income investments, currencies and commodities dropped by 44% compared to the same quarter a year ago.
