Betting Against Yourself

Betting against yourself doesn't seem to make much sense, but maybe sometimes it can. Part of the $2 billion loss recently disclosed by JPMorgan Chase can be attributed to one trader who was selling insurance on corporate debt, also known as a credit default swap (CDS). But what is surprising is that a purchaser of these CDSs was one of the company's mutual funds! While this seems counterintuitive for two divisions of the same company to be making opposite trades, in this case it is perfectly acceptable. The trader for JPMorgan was attempting to make a profitable trade for the company, while the mutual fund was acting on behalf of clients. The fact that this trade made money for the clients at a cost to the company shows that the two divisions were acting separately, which should be the case for these two divisions. http://dealbook.nytimes.com/2012/05/15/as-one-jpmorgan-trader-sold-risky-contracts-another-one-bought-them/