A perfect play: The Japanese trader who made $34m on Black Monday

Before the panic selling of Black Monday a trader bet the Nikkei would fall. As it plunged, he judged the bottom perfectly, and then doubled his money as it rallied.

While a lot of investors were hitting the panic button amid the stock-market turmoil on August 24, a Japanese day trader who had made a big bet against the market timed the bottom almost perfectly, and narrated a play-by-play of the trade to his 40,000 Twitter followers. He says that he walked away with US$34 million.

As markets got crazy last week, many people turned cautious. Some were paralysed. Not the 36-year-old day trader known by his internet handle CIS.

“I do my best work when other people are panicking,” he said on August 25, about an hour after winding up the biggest trade of a long career betting on stocks. He asked that his real name not be used because he’s worried about robbery or extortion. To support his claims, he shared online brokerage statements showing his trades second by second.

CIS had been shorting futures on the Nikkei 225 Stock Average since mid-August, wagering it would fall. By the market close on Monday, a paper profit of $13m was staring him in the face. He kept building the position. When he cashed out late that night, a collapse in New York had caused his profit to double.

Instead of celebrating, he kept trading. He started betting the market had bottomed. When he finally took his winnings off the table on Tuesday, he tweeted, “That’s the end of my epic rebound trade.” His profit, he said, had almost tripled.

“It was a perfect trade,” said Naoki Murakami, whose markets blog has made him a minor celebrity in his own right.

Last year, when CIS was the subject of a profile in a financial markets magazine, he said that in a decade of day trading, mostly from a spare bedroom in a rented apartment, he had amassed a fortune of about $150m. At the time, he shared tax returns and brokerage statements to back up his claims.

One document showed that he had traded $14 billion worth of Japanese equities in 2013 – about half of 1 per cent of all the share transactions done by individuals on the Tokyo Stock Exchange that year.

CIS became a cult figure among Japan’s tight-knit community of day traders over his often outrageous claims on internet message boards early in his career. “Not even Goldman Sachs can beat me in a trade,” is one of his early boasts.

Last year he opened a Twitter account, on which he talks about video games and, regularly, his trading. It’s impossible to say how many of his followers are also day traders, and how many of those buy and sell in his wake. Those who do, of course, are quite possibly helping him make money.

Speaking at a Tokyo coffee shop before continuing on to a card game with buddies, CIS explained his recent trades step by step. Dressed in a grey T-shirt with a flannel shirt tied around his waist, he kept an eye on a brokerage account on his iPad as he spoke.

“Of course I’m happy about today, but you win some and you lose a lot, too,” he said, explaining that the Greek financial crisis had cost him about $6m.

CIS said he has no idea whether or not China is going to drag down the global economy. He doesn’t even care. When he trades, he tracks volumes and price moves to follow the momentum. For him the basic rule is: “Buy stocks that are being bought, and sell stocks that are being sold.”

The latest trade began on August 12, when CIS noticed a shift in equity markets he hadn’t seen for a while. Shares in the major indexes were struggling to recover from sell-offs. He started shorting Nikkei futures – 200 contracts the first day and another 1,300 over the following week and a half.

The stakes were enormous. With 1,500 contracts at a notional value of about $160,000 each, his bet against the Nikkei was about $240m. For every 100-point move in the Nikkei index, he stood to make or lose $1.25m.

The market was mostly flat over the next few days. CIS bided his time playing video games. On Friday August 21, the Nikkei dipped. Then on the following Monday, the index plunged the most in two years, and the futures fell more than 1,000 points to 18,410. By the close at 3pm in Tokyo, his profit stood at about $13m.

This is the point where most traders would take their money off the table and call it a year. Not CIS.

“I’m adding to my position,” he wrote on Twitter. “Then I’m going to go for a walk and prayer.”

He sold 100 more futures contracts. Two hours later, he sold another 100. His bet against the Nikkei had risen to about $275m. He would lose $1.4m for every 100-point increase in the index.

His logic for hanging on to the trade until the US open – at 10.30pm, Tokyo time – was that panic would grip American investors returning from a weekend after they saw the scope of Asian selling, including Shanghai’s 8.5 per cent plunge.

That would trigger selling, which, in a feedback loop, would pull Nikkei 225 futures down violently amid the thin volume of late-night trading.

“I figured there would be a lot of fear around the US open and that’s what I was aiming for,” he said.

On cue, the Dow Jones Industrial Average fell more than 6 per cent in early trading. The Chicago options exchange’s Vix index, also known as the “fear index”, rose 82 per cent on its first tick of the day to a level not seen since the global financial crisis. Nikkei futures tumbled again, dipping 1,250 points below the 3pm closing level. CIS, home in his pyjamas, finally cashed out his short position. His profit had hit $27m.

There was still more money to be made from the panic though. Some investors that night were willing to pay a hefty premium for options that protected against the Nikkei crashing below 10,500.

That would be a collapse of almost 40 per cent. In CIS’s view, these investors were looking to buy insurance against a near impossibility.

He was happy to take the other side of that trade. The contracts were worth another $250,000 to him. He made the first deal within 10 seconds of what would prove to be the market’s bottom at 10.34pm.

“Too delicious,” he tweeted.

About an hour later, as he became more confident in a rebound, he started buying Nikkei futures. Now the play was the opposite of the short bet he’d started the day with. By 1am on Tuesday morning, he’d accumulated 970 contracts, a $145m wager that the market would start to climb.

He made one more trade before bed – a few more option contracts sold to straggling panickers. Those were worth $6,250. By now, at 1.40am, he was a rich man stooping to pick up pennies.

He dashed off a last tweet at 2am. “What a day. Still holding on to all my buys,” he wrote. “Time to sleep.”

CIS returned to Twitter five hours later. Nikkei futures opened at about 18,000 and slowly recovered. Early that afternoon, he closed out his long position.

At the coffee shop later that day, CIS was pretty nonchalant for man who had made tens of millions of dollars in less than 24 hours. For him, it was just one trade out of thousands he would make this year.

“When a trade goes right, I feel like bragging a little, but I don’t get on Twitter to talk about it if I lose,” he said with a smile.

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