Another example of the impact of the risks of synthetic trades on futures backfired spectacularly last week. A private hedge fund Archegos Capital Management (website currently down) defaulted on a series of Total Return Swap deals on ViacomCBS (among others) forcing a liquidation of shares and a subsequent couple of trading days. The scale of the default is still not known, but major financial institutions have issued loss warnings that are assumed is an outcome of the issue. As always: highly hedges give you profit if you’re good and major disasters if you don’t. For those old enough: Remember LTCM.
Update: A paywalled article from Wall Street Journal on the market impacts