WSJ Stretches with Black-Swan Theory of the Crash

A tried and true way to draw readers to your blog is to say something provocative in your headline and add a question mark. It’s a red flag that what follows is typically speculation, but, hey, you’ve already got all that traffic.

The Wall Street Journal does the newspaper version of that today on the front of Money & Investing with a story headlined “Did a Big Bet Help Trigger ‘Black Swan’ Stock Swoon?”

Well, it “may” have, although it “mightn’t” have, either. The Journal doesn’t know, and neither do you after reading this story. I criticized The New York Times last week for overdosing on weasel words in its lede story last Friday on the crash. The Journal trots them out here, too:

On any other day, this $7.5 million trade for 50,000 options contracts might have briefly hurt stock prices, though not caused much of a ripple. But coming on a day when all varieties of financial markets were deeply unsettled, the trade may have played a key role in the stock-market collapse just 20 minutes later.

The trade by Universa, a hedge fund advised by Nassim Taleb, author of “Black Swan: The Impact of the Highly Improbable,” led traders on the other side of the transaction—including Barclays Capital, the brokerage arm of British bank Barclays PLC—to do their own selling to offset some of the risk, according to traders in Chicago.

Then, as the market fell, those declines are likely to have forced even more “hedging” sales, creating a tsunami of pressure that spread to nearly all parts of the market. The tidal wave of selling fed into a market already on edge about the economy in Europe. As the selling spread, a blast of orders appears to have jarred the flow of data going into brokerage firms, such as Barclays Capital, according to people familiar with the matter.

Well, all righty then.

Felix Salmon says:

Of all the silly theories about the cause of Thursday’s stock-market plunge, I’m not entirely sure why the WSJ has decided to give particular credence to the idea that it can all be traced back to a single $7.5 million trade for 50,000 options contracts. Lots of options trades of that size take place every day, and just because this one happened just before the market fell doesn’t mean it was the cause of the crash.

It’s good to get the Nassim Taleb part of the story out there and to push back on the “fat-finger” idea that took hold so quickly. But the Journal despite its hedging, goes too far for what it actually had nailed down. This information would have worked better in a column like Heard on the Street or as part of a bigger story on the confusion over the causes of the “flash crash.”

It could be that it might have been better to sit on this one, maybe, until it could, potentially, be beefed up.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.