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$2 billion wager wins big

By Judy Martel · Bankrate.com
Friday, September 2, 2011
Posted: 1 pm ET

Last month, New York billionaire Carl Icahn made $100 million on a $2-billion bet that the benchmark Standard & Poor's 500 Index would decline. Nice work if you can get it.

An article in Investment News said the 75-year-old investor turned bearish in mid-August as the European debt crisis loomed and the outlook for the American economy weakened. Volatility shot up during August, with the S&P rising or falling by more than 4 percent in four out of five trading days during the second week alone. According to the Securities and Exchange Commission, Icahn held more than $11 billion in stocks of publicly-held companies as of June 30, so it's understandable if he was feeling a little jittery.

It’s not uncommon for hedge funds to bet against the S&P, as Icahn did, if they think equities will decline, or they want to protect against losses. Hedging is a smart move when volatility is high, and last month delivered in spades. The Chicago Board Options Exchange Volatility Index (VIX) rose 35 percent to 42.7 on Aug. 18, the third-highest close of the year.

It's near impossible to time the market consistently, so volatility won't always work in your favor if you try it. There are alternatives for those who want some consistency, but whose portfolios don't run into the billions. Check out these hedge funds for average investors.

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