October 87 short calls blow up

sle · Aug 19, 2016

People have blown up on a variety of far-end exotic risks. Heck, I know a guy who blew up being LONG a bunch of SPX tail risk in the fall of 2011 (now, THAT was an achievement if you ask me).

TraDaToR · Aug 19, 2016

Huh? How do you do that?

TraDaToR · Aug 19, 2016

Like buying more premiums than there is money on your account and all expire worthless?

Martinghoul · Aug 19, 2016

TraDaToR said:
I meant being right on underlying direction.

Martinghoul, was it during august 07 " first crash"? Interest rates went up abruptly? Were there some casualties?

Yeah, that's right... And sure, there were casualties. Obviously, it was all subsequently overshadowed by the bigger dramas of 2008.

Martinghoul · Aug 19, 2016

sle said:
Your former colleague JW and his BSD-style trades? That was not being right, that was being VERY WRONG

Yep, they were one of the victims... And indeed it was rather wrong, but what else is new.

Martinghoul · Aug 19, 2016

Maverick74 said:
There are probably are a lot in the exotic space. Marty will know better then I. When you have currency pegs a lot of guys try to sell against the peg. The reality is, vol can explode near a barrier even without the barrier ever being broken. THAT is counter-intuitive.

Yeah, there are all sorts of stories, across both the buyside and the sellside. The story is always the same: lack of respect for the power of leverage.

sle · Aug 19, 2016

TraDaToR said:
Huh? How do you do that?

-- delta hedged his tail puts into the August expiration
-- bought more crash protection (var/vol, specifically)
Guess what happened?

sle · Aug 19, 2016

Martinghoul said:
The story is always the same: lack of respect for the power of leverage.

"Bulls Make Money, Bears Make Money, Pigs Get Slaughtered"

donnap · Aug 19, 2016

"the market can remain irrational a lot longer than you can stay solvent."

The Donnap Corollary to this saying is that "the market can remain irrational a lot longer than you can stay rational."

TraDaToR · Aug 19, 2016

sle said:
-- delta hedged his tail puts into the August expiration
-- bought more crash protection (var/vol, specifically)
Guess what happened?

I will most likely be wrong, but if I recall, there was some kind of small crash in august 2011, so by delta hedging into august expiration, he probably missed the volatility increase that would have made his bet profitable and used the margin left to buy some further protection only to see the volatility go back to normal? Sorry if that wasn't a real question.