Quote:
Originally Posted by Rick Lee
Did Paulson cash in by buying insurance on the cheap? If so, how did that make him a profit? Wouldn't that just have mitigated his losses?
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The ABX/CDS are traded like bonds. If a party wants the protection offered by the ABX index, they will pay the market pricing. Paulson profited by buying the ABX when prices were absurdly low and then selling when debt holders were desperate for that debt insurance.
The guy had the right money in place at the right time. The end of the article mentions how his fund will eventually start looking for "opportunities in distressed debt." This guy is a good player. He's bearish when the time is ripe and bullish when all seems lost. The only difference between Paulson and me is his bank account has more zeros.
