Optionsellers.com goes bust and the apology video is painful to watch

[themickey]

The apology video is embedded within this one. The first few minutes are spent discussing what happened then it shows the video from James.

The oil spike down which was mentioned in the video, that occured on the 13th of this month and caught me by surprise. (I was flat oil stocks). Just prior it appeared oil was bottoming from my analysis and the spike I think caught the wider market off guard. A small black swan or blowoff bottom event.
So according to the video the oil move loss caused Optionsellers.com to place a revenge trade on NG.

 

[PJB1994]

The broker could be held liable in the IRAs case. Most brokers will not even allow you to trade options outside of covered calls meaning you have to have the stock at hand before you can sell a call. Fidelity Investments allow only covered calls for IRAs. TD Ameritrade will allow you to buy call and put options. That is less risky than selling naked call options as your maximum risk is the cost of the call option say $300. That is in a worst case scenario. Consult a good attorney. The broker is atleast, complicit in allowing such trades as selling naked calls using IRA monies.
Your attorney might be able to claw back some of the IRA monies from the broker. There are restrictions placed by Federal authorities on brokers precisely, to protect investors in the case of IRA monies since, it is for retirement.

Thank you. Does it make a difference that it was a Self-Directed & 1031 IRA?

 

[smallfil]

Thank you. Does it make a difference that it was a Self-Directed & 1031 IRA?

Your attorney probably, can give you better advice than me. One last thing, you can consider filing a complaint with the Securities and Exchange Commission which is in charge of the brokers too. Consult your attorney on what is the best approach. Just throwing one more idea out to discuss with your attorney. Good luck.

 

[PJB1994]

Your attorney probably, can give you better advice than me. One last thing, you can consider filing a complaint with the Securities and Exchange Commission which is in charge of the brokers too. Consult your attorney on what is the best approach. Just throwing one more idea out to discuss with your attorney. Good luck.

Just found this on https://www.managedfuturesinvesting.com/can-i-go-short-in-my-ira-account/ Doesn't look very good ....

Selling Naked Options
You can trade options in an equity IRA account, but you are not allowed to sell naked calls or puts. When trading futures, you can sell naked calls or puts on futures in your IRA account. Furthermore, when investing in CTAs via managed futures, some CTAs may employ strategies that call for naked option selling. While these naked selling strategies are risky, they are permitted in your IRA account.

 

[JSOP]

I don't think that is correct? Schwab won't let me trade naked shorts on my self directed IRA, said it was not allowed?

Schwab is dumb. It doesn't even allow covered option writing or option spreads or option buying which are all allowed in IRA. In actuality, investment in options in any form is allowed even naked option writing as options is not on the list of prohibited investment under IRS which is the only governmental body that sets the rules as to what is and what is not allowed in an IRA. The only reason why naked option writing with margin is generally prohibited in an IRA is it could trigger UBTI taxes because it's considered borrowing from an IRA. Some brokers might even allow naked option selling if it's 100% cash secured and no leveraged margin. IRA custodians do have the right to allow or restrict whatever investments that goes into an IRA even if it's allowed by the IRS.

 

[JSOP]

Just found this on https://www.managedfuturesinvesting.com/can-i-go-short-in-my-ira-account/ Doesn't look very good ....

Selling Naked Options
You can trade options in an equity IRA account, but you are not allowed to sell naked calls or puts. When trading futures, you can sell naked calls or puts on futures in your IRA account. Furthermore, when investing in CTAs via managed futures, some CTAs may employ strategies that call for naked option selling. While these naked selling strategies are risky, they are permitted in your IRA account.

OMG!! Didn't know that they even allow naked option selling on futures. That is very weird considering futures is far riskier than stocks.

Ok so that means both FC Stone and Midland are off the hook. The only ones you can get are optionsellers.com and James Cordier for reckless trading, trading in investment inappropriate for client's risk tolerance, not properly advising clients' risk due to negligence, violation of fiduciary duty and duty of care to clients if he told you personally he will only do vertical spreads and iron condors but he was engaging exclusively in naked shorting.

 

[JSOP]

Thanks very much. Do you have any idea how the debit balance at FC Stone for the IRA account will be handled? I assume I have to pay that with after-tax dollars and write it off as a capital loss? So, Cordier took the money out of the IRA and then FC Stone provided the leverage, so now I owe FC Stone for the negative balance? Wonderful.

Whether you use the after-tax dollars and can write it off as a capital loss, that I am not sure, you would have to double-check with an accountant. I think it would depend on the type of your IRA account. You owe FC Stone because Cordier acted with POA from you so it's as if you traded out of your IRA account personally with margin provided to you by FC Stone if you stated that optionsellers.com did not even operate as a hedge fund which we all thought it did and traded directly on behalf of its clients.

 

[PJB1994]

OMG!! Didn't know that they even allow naked option selling on futures. That is very weird considering futures is far riskier than stocks.

Ok so that means both FC Stone and Midland are off the hook. The only ones you can get are optionsellers.com and James Cordier for reckless trading, trading in investment inappropriate for client's risk tolerance, not properly advising clients' risk due to negligence, violation of fiduciary duty and duty of care to clients if he told you personally he will only do vertical spreads and iron condors but he was engaging exclusively in naked shorting.

I know! Who the hell made that law? Makes zero sense as I agree that futures are far risker than stocks and when paired with options, seems even more risky. I think I'm basically screwed. The losses are likely in the hundreds of millions (290 clients with minimum $500k to $10 million each all wiped out PLUS the damn debit balances). It's bad enough that the money from the accounts is gone, but having to pay a debit balance is excruciating. OptionSellers is a small shop with just a handful of traders so I honestly don't know how much they have. The severity of this guy's screw up is stunning.

 

[Mpeter]

short call position in crude oiL???
Maybe they mean short puts?
Or short natty calls??

I remember many years ago when I first got involved in futures... a story specifically about a natural gas trader who wrote calls on NG every month for years and years and years. He was just printing money. Every month reliably. Making millions. Until one day I believe it had something to do with greenspan saying something about NG. And the price exploded from like 2 to 11 in a few days??
And he lost everything he had and then a whole bunch more.

Risk of ruin.

Imagine you were naked short SF puts a few years ago. That’s a career ender.
They happen.

 

[PJB1994]

Whether you use the after-tax dollars and can write it off as a capital loss, that I am not sure, you would have to double-check with an accountant. I think it would depend on the type of your IRA account. You owe FC Stone because Cordier acted with POA from you so it's as if you traded out of your IRA account personally with margin provided to you by FC Stone if you stated that optionsellers.com did not even operate as a hedge fund which we all thought it did traded directly on behalf of its clients.

In his video, he said "hedge fund" but I don't believe that is true. He had POA to trade out of each individual account. As far as writing off the capital loss for the IRA, I will speak to my accountant. Unreal. It will be interesting to see how FC Stone reports the losses - would it even differentiate between the IRA and taxable account? I'm assuming I'll also get some type of statement from Midland at the end of the year with my whopping zero balance. The more I think about this, the more complex it gets. I'm sure this isn't something accountants see very often!