-31-
sales on each day. A few of these transactions were butterfly
spreads.23
At times, Tandrill established positions that appeared to be
regular, nonbutterfly spreads but which, on closer examination, had
little risk involved. For instance, in early November 1979,
Tandrill purchased February 1981 gold contracts and sold April 1981
gold contracts, a “forward spread” which apparently anticipated
that interest rates would decline. However, at the same time
Tandrill purchased January 1981 silver contracts, it sold December
1980 silver contracts, resulting in a “back spread” which sought to
profit from an increase in interest rates.
In 1979, Tandrill bought and sold 160 contracts of copper
futures straddles, 330 contracts of gold futures straddles, and
1,110 contracts of silver futures straddles through Bache.24 Of
these transactions, 164 contracts of gold futures, 721 contracts of
silver futures, and 100 contracts of copper futures were all
23 The butterfly effect offsets forward spreads (which are
profitable if interest rates decline) with back spreads (which
are profitable if interest rates increase). Mr. Maduff believes
that this sort of strategy is "economically schizophrenic".
24 Mr. Maduff believed that because Tandrill engaged in
more transactions than necessary to achieve a given economic
purpose, its transactional costs were greater. Moreover, because
Tandrill held positions for short periods of time, it was less
likely the positions would move.
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