I think there is an argument to be made here that the broker and the company exposed you to unlimited risk ie naked options which are leveraged, on futures which are also leveraged. This is like someone putting you into naked options on vix futures, it it impossible to define your risk/ possible losses. I think a smart securities attorney could rationally construct this argument. Whether you would win is another story. Additionally, there should be some precedence set by the powers that be so this doesn't happen to other people in the future. In other words you should not be allowed to trade this way even with power of attorney in your account.
Optionsellers.com goes bust and the apology video is painful to watch
- Thread starter Sweet Bobby
- Start date
I think there is an argument to be made here that the broker and the company exposed you to unlimited risk ie naked options which are leveraged, on futures which are also leveraged. This is like someone putting you into naked options on vix futures, it it impossible to define your risk/ possible losses. I think a smart securities attorney could rationally construct this argument. Whether you would win is another story. Additionally, there should be some precedence set by the powers that be so this doesn't happen to other people in the future. In other words you should not be allowed to trade this way even with power of attorney in your account.
Look at it this way as if you were buying the option that he is selling. You buy an option that is way out of the money with a lot of time left on it and is going against the fundamentals in the trade, then it will take a huge move for you to double your money. It is not like you have a strong market day and you doubled your money and then lost it the next day. So when it does get to the point that you double your money you take your profit. That is when he was suppose to take his loss.
As far as 1:1, think like this. Take all the spades out of a deck of cards. Shuffle the deck and pull out a card. If it is red then you win $1 and if it is black you lose $1. You will play that game all day long at a 1:1. That is the game he had going for 20 years until he broke the rules and when too heavy and stayed too long in the position and instead of 1:1, he had a 1:100 or whatever it was.
Except that with his high win rate, most cards are the same color. This is what I'm saying, that 1:1 and a high win rate isn't that common. Maybe being an options seller and betting on something that will almost never happen means that you can be right often, but when you're wrong, you pay dearly. It sounds odd then to say its 1:1 because you can't get out for a small loss, the same amount as your win. If his stats were 1:1 with a 90% win rate, heck, you have a cash machine.
Its more like 100:1, risk to reward, and even with a high win rate, when that loss does hit, its very bad.
Now like I say, I don't watch options so I don't know how these things move, but just looking at the numbers, there is no way he can be risking $100 to make $100 and be right 90% of the time. Its more like he is making $100 and is right often, but when he is wrong, he maybe loses $500, but because he didn't take his loss, it got much bigger, and then the margin call came. Who knows how deep the loss was in relation to the profit from selling the option when the call came, but none of that really matters.
What really gets me though when looking at the charts is this. First chart is a weekly continuous contract of NG. Sure you have to go back 2 years, but prices in the $4 or higher range are there. So the bullshit about this being some rogue wave I don't understand. If you're making a bet that something has a very low chance of happening, it better not have happened within 2 years.
This next chart is the daily. Seems to me like there were lots of places to get out. As has been pointed out before, there was only one gap, but that's it. I'm not sure how this looks on the options side, perhaps those bids and asks for the various strikes were all over the place, but still, this rogue thing is kind of silly.
This next chart is the daily. Seems to me like there were lots of places to get out. As has been pointed out before, there was only one gap, but that's it. I'm not sure how this looks on the options side, perhaps those bids and asks for the various strikes were all over the place, but still, this rogue thing is kind of silly.
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I'm not buying any excuses about 'rogue wave' bs from this unprofessional professional.
My opinion, this captain got complacent and was asleep at the wheel.
Shorting NG in November? Reckless idiots!
My bet is that the rogue wave was actually a rogue employee but they are covering this technicality up in order to save their asses from lawyers.
The captain in his complacency was not in the wheelhouse but in his bunk shagging while another one of their inexperienced lackies had on a short position when they should have been long.
Look at this chart, nothing rogue about it, if anything the move was considerably to be expected.
https://www.barchart.com/futures/qu...=0&sym=NG*0&grid=1&height=500&studyheight=100
My opinion, this captain got complacent and was asleep at the wheel.
Shorting NG in November? Reckless idiots!
My bet is that the rogue wave was actually a rogue employee but they are covering this technicality up in order to save their asses from lawyers.
The captain in his complacency was not in the wheelhouse but in his bunk shagging while another one of their inexperienced lackies had on a short position when they should have been long.
Look at this chart, nothing rogue about it, if anything the move was considerably to be expected.
https://www.barchart.com/futures/qu...=0&sym=NG*0&grid=1&height=500&studyheight=100
Nothing is fail-safe. Everything fails at some point, even if only for a short while.
Holding naked options always has the potential to hand you your butt if there is a sudden and abnormally large move. The risk is always there. As a professional firm, he should have been hedged to some degree, but it sounded as if though he never did.
Well for the record, he did hedge but with 2 long calls for 24 short calls he wrote and with strikes that WAY OTM. The price of the short calls was 5 cents each, the 2 long calls was $0.009 and $0.005 each respectively. LOL So yeah he hedged to "some degree". LOL But he might have still violated his POA agreement. In his agreement and his advertisement, he states that he invests in 6-9 month expiration short calls but according to the excel worksheets of one client, he shorted March 19 expiration calls back in Jan. of this year, that's a 14-month expiration short call!!
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If the bid and asks were all over the place, then that means the options is not that liquid, all the more reason that this instrument is not the best one to trade in.
After seeing the charts above, I looked at the excel worksheets more closely. I was wondering how can he lose money on puts if the NG prices shot up. I was right to doubt. It turns out he didn't, except on the 1 or 2 puts with the 2650 strike , he actually made money on the rest of the OTM puts. So this client had $800K+ of losses from the calls, but actually made profits on pretty much all of the puts, still bad losses but much better than the $1.6 million losses that he made out to be on the excel worksheet.
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It is BS because it was a self-inflicted wound to speak of! For being so called experts, James Cordier should have known as most people that selling naked calls risk is unlimited to the upside. The right decision would have been to hedge by buying a higher strike call option. It would still have been a huge loss but, not a total wipeout as it happened! My guess is greed got the better of him. Why waste monies hedging when he can stuff it in his pocket?