Famous option traders

Quote from kinggyppo:

perhaps Madoff should be included his split strike strategy was bunk maybe someone can explain how to identify this type of fraud.

http://nakedshorts.typepad.com/files/madoff.pdf
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My brother showed me some Euro prospectus which turned out to be a Madoff feeder. There was no mention of Madoff in the prospectus. I assumed it was a deep ITM synthetic long call spread, when in reality he was supposedly trading ATM.

IOW, I told him to get out because he didn't want to take the risk of selling dimes in puts (synthetically). I had no idea it was promoting ATM trades. I would've immediately smelled BS had I known it was an ATM strategy.

I also explained why it was detrimental to trade the split-strike in lieu of the vertical. Someone should have explained the difference to Madoff and he could've avoided the scam-accounting related to the share purchases.
 
Quote from atticus:

My brother showed me some Euro prospectus which turned out to be a Madoff feeder. There was no mention of Madoff in the prospectus. I assumed it was a deep ITM synthetic long call spread, when in reality he was supposedly trading ATM.

IOW, I told him to get out because he didn't want to take the risk of selling dimes in puts (synthetically). I had no idea it was promoting ATM trades. I would've immediately smelled BS had I known it was an ATM strategy.

I also explained why it was detrimental to trade the split-strike in lieu of the vertical. Someone should have explained the difference to Madoff and he could've avoided the scam-accounting related to the share purchases.
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All these ATM concerns relate to the nonlinear sticky delta Derman thingy right?.
 
Quote from mizhael:

Human market-making is probably now giving way to electronic market-making?
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Agreed, but humans program the computers and run the business. I would say that Jim Simon is a very famous trader and he does it all through computer proxies.
 
Quote from marketsurfer:

Isn't everyone a <i>marketmaker</i> in options ?
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No. A market maker is obligated to provide a bid and an ask at every strike for the option chains he's making a market in. They maintain a delta neutral position and for that reason are able to borrow with much more leverage (for hedging purposes) than the rest of us. They make their living on the bid/ask spread, and have to be good at judging future volatility, but rarely if ever do directional trades.
 
Quote from eudaemon:

All these ATM concerns relate to the nonlinear sticky delta Derman thingy right?.
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No, simply that an atm vertical is roughly a 50/50 proposition, and he never had any losing months even during selloffs in the index. He was long the atm call vertical.

Say he had been long stock from 72, short the 75C and long the 70P (long the 70/75 call spread)... it's a bull-trade to $75+. You would be producing losses on your synthetic bull verticals in declines and he was producing 1% per month even in down markets. Look at one period in question (SPX 1550 to SPX 670) in which he was producing 1% like clockwork.

Now suppose you're long the shares from 72, short the 65C and long the 60P (long the 60/65 call spread)... you're still bullish, but the probability of earning nickels is very high. Moronic strategy, but the return would've been believable.

Madoff was stating he was in atm strikes. Of course, there was no trading being undertaken.
 
Quote from HowardCohodas:

This is a question out of ignorance. What are the challenges associated with auditing the trading accounts to verify or refute Maydoff's claims?
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Hedge Funds are private entities and are not required to hand over any of their detailed trading accounting to you as a prospective investor. You can ask for financials but they will most likely be generalize financials of the financial state of the management company. However you will never really get access to the trading accounting of the fund as an outside person or even as a limited partner/member in the fund. So the main challenge is that you basically have no right to the trading accounts paperwork. The hedge fund controls what it release so you can bet what they release is stripped down or not telling the whole story.

That is why you have to really look into what they are trading and what their returns are and the credibility of who is running it. Even then, hedge funds can generalize the descriptions of their strategies. The few prospectus I have read are so generalized they claim they trade options futures, equities, forex, exotics, etc.. but no detail on their strategy.

Hedge funds for the limited partner are like investing based on faith in a way...
 
Incredible he pulled that off for so long and so big. Did he have very good reputation or help from powerful people?. I know he was once head of Nasdaq, but still...

I have seen basically the same con in different ways in 20 years. First Overseas Investment Services, some other from Spain I forget the name, then there was Van Tharp's golden boy whatsisname David Mobley taking in the order of 100 M from suckers (including Van Tharp and his employees!)...etc, etc... Same con with OEX or some other in dex option brochure, and no trading actually taking place, or very small losing trading in small accounts...everything went into "philanthropy", and real estate mansions, performance cars, yachts, etc used in marketing...

That Madoff could get so far is really impressive...and suspicious...
 
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