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The Tale of the Onion King
Hope everyone is enjoying their CNY holidays. To keep things light, here’s the story of how someone got rich by buying…ONIONS. Let’s unpeel this story layer-by-layer 👇👇
Futures:
First, we need to know what a futures contract is. It’s essentially a deal to buy something in the future at a fixed price, regardless of what the market price is when the deal is due. Say you buy oil futures for $60 a barrel today with an expiry in July 2022. If the price of oil is $120 a barrel by then, your hunch was right, and it paid off. If it ends up being $30/barrel, then tough luck, you’ve paid double for its price. Now back to Onions.
Onion Futures:
In 1955, Vince Kosuga built a warehouse at his farm. He was secretly buying millions of onions from all over the US. Vince wanted to own all the onions, even onions that were still not harvested yet. He did so by buying all the available futures contracts for onions. By the winter of 1955, Vince did the impossible and owned all the longs in the futures market, basically owning all onions in the US. Vince had cornered the market.
Onion Corner:
With all the onions, Vince could charge any price he wanted, so he set the price very, very high. This made him a lot of money. He didn’t stop there though, he could also make the price very, very low. Remember futures? Yea, Vince had tons of futures to bet that prices will fall. Then, when his futures were about to expire, he brought out all the onions he hoarded in his warehouses and flooded the market. Train yards, loading docks and trucks were filled with onions. Onions became so worthless that the bag itself worth more than the onions. Vince made $8.5 million from his move, that’s about $85 million today.
Because of the Onion King, the US Congress passed an act to ban onion futures to prevent a successor to the title. To this day, it is illegal to trade futures for onions in the US. 🧅🚫
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