“A co-worker asked me if there were any way to short this market. I said I didn’t think so, at least for retail investors like him/me. Are there ways for large institutional investors to do this? Are there any funds out there that are short on RMBS CDOs?”
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The answer to your first question is yes, by way of credit default swaps (CDS). This has been going on for some time now and the value of CDS’s for the riskiest CDO tranches has risen dramatically. A tidy profit can be made from selling previously purchased CDS’s, but the real $$ stands to be made after the defaults.
I am unaware of any readily accessible fund that an individual investor can buy into that specifically holds CDS’s on RMBS CDO tranches.
The potential for collusion in this investment area is extremely high. Anyone who finds access to invest in CDS’s is best advised to educate themself on all the angles before plunging in.
