Do you, or anybody else, know how big Nick Leeson's position was in that night where on the next morning the black-swan event happened, ie. the earthquake?
Another BS statement re IV?
- Thread starter mutluit
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I get very nervous trading large notional positions in my own account. Last week I put on a DITM bull call spread in PCLN, with what I perceived was positive expectancy. Because it was a tight spread, the P/L at expiry was something I could handle in terms of my account size, but the giant swings in the options gave me fits. Each side of the trade at any time could be up or down roughly the size of my account. Because it was a debit spread and the short leg was still ITM, I hung on tight. (Part of the instantaneous P/L is affected by my broker using bid and ask prices on long and short positions, so it always looks worse than reality, but still.)
Eventually PCLN dumped below my short strike and I closed out for a small loss. That said, there is no freakin' way I could be trading billion dollar combos, even if weren't my own money. An investment banker I am not.
Eventually PCLN dumped below my short strike and I closed out for a small loss. That said, there is no freakin' way I could be trading billion dollar combos, even if weren't my own money. An investment banker I am not.
As long as the net debit of your debit spread (i.e. max risk) isn't more than 1-2% of your account there's not need to worry. Looking at the daily swings of the individual legs of the spread is meaningless.
And how much premium had he received when he short sold it?
How to compute it using BlackScholes model? What expiration time can one take in this case?
Just 1 day, or maybe something like a week? And, what was the volatility of the Nikkei before the Kobe earthquake? 20%?
Depending on the above said input params, he must have lost about ~1000% (maybe even 1300%) in that trade when the underlying Nikkei index fell 7% overnight.
So, when he lost $1B then his position must have been about $77 million when he opened it, I think.
Here are some numbers, but I think these news writers are inexact people with bugs in their numbers and logic, as can be seen again:
http://www.next-finance.net/How-Nick-Leeson-caused-the
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I get it . . . we're just talking about REALLY BIG NUMBERS when compared to my account. Like, almost equal. The doomsday scenarios start to spin up.
Plus, much like standing on the edge of a cliff and wondering "why don't I just jump", I have to talk myself out of taking the giant intermediate gains on the short leg when the underlying moves down towards my short strike. It would be so EASY, right? And then I'm long a giant position, with nothing hedging it. Ugh. Gotta talk myself down.
Holy shit dude. You need to get a grip.
this article is garbage- I have seen Nick Leeson talk about this in a big public 'own up' and his position was not that bad when he left and told someone else to close out-and his trading details were Emailed to London and ignored-he was as much a victim as the customers who lost their shirts -all banks are run by liars and cheats who couldn't trade their way put of a paper bag-allegedly
they should prob stipulate a short delta neutral...