Bad Volkswagen Trade Adds To Greenlight Capital's Recent Woes

With shares of Volkswagen quadrupling over the past few days on the 'mother of all short squeezes', after Porsche said it plans to raise its stake to 75%, traders are asking who got hurt the most.

One hedge fund that likely suffered substantial losses was David Einhorn's Greenlight Capital. In an October 1st letter to investors, Greenlight discussed that they added to their bet against Volkswagen, calling the stock "highly overvalued". That was of course before the recent surge.

The bad Volkswagen trade adds to Greenlight's recent woes. In the October 1st letter, Greenlight Capital had disclosed that their three funds were down between 16.7%-17.9%, net of fees and expenses, in Q3. For the year, the funds were down between 14.4%-16.4%. Up until this year, Greenlight had been a consistently strong performer. Greenlight showed it was ahead of the curve on Lehman Brothers, shorting the stock at least a year before its bankruptcy.

Earlier today, there was speculation that other losers on the 'short Volkswagen' trade were large investment banks, Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS). Later, sources at both Goldman and Morgan Stanley both denied having significant losses related to Volkswagen.

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