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Premium Sellers vs. Option Buyers
- Thread starter Squilly_D
- Start date
Quote from mrez114:
Mav, how did you get to $10mm loss on 10-15 contracts. Even at 20 points I can't get to more then $75k, according to my estimate. Which product did this guy trade? This is still substantial, so no argument that this person was way over leveraged.
He layered them all over the place. He had no idea where he would get filled so he might have had offers out on 20 different strikes and I guess he had some 50 lot positions as well. Sometimes he would just get lifted on everything at once so he couldn't pull his orders fast enough. And the offers may have been greater then 20 pts on some of the strikes.
Quote from mrez114:
Thanks, that makes sense.
It really was a catch 22 for him. He had to sit on the orders for weeks to get fills so it didn't make sense to piecemeal the orders since he didn't know which strikes were going to get filled. So he had to place more orders out there than he was comfortable with and hope they would not all get lifted at one time. Well, they all got lifted at one time. LOL. Funny how that works. And funny how this sort of stuff never shows up in the backtest.
I'm surprised ANY risk manager would allow this.
Quote from newwurldmn:
I'm surprised ANY risk manager would allow this.
We didn't. Ever trade at a prop firm? A lot of shit like this happens all the time. I could tell you some stories. This isn't even the worst of them. This is nothing compared to what I've seen. At the end of the day, what they all have in common is a bunch of guys that can't make money trading who resort to premium selling as a crutch.
Quote from Maverick74:
We didn't. Ever trade at a prop firm? A lot of shit like this happens all the time. I could tell you some stories. This isn't even the worst of them. This is nothing compared to what I've seen. At the end of the day, what they all have in common is a bunch of guys that can't make money trading who resort to premium selling as a crutch.
There aren't checks in place? Risk limits and gap risk analysis?
First New York does this. I know someone who was fired for "style drift." Hired for one strategy and they found him trading futures to take delta views.
Quote from newwurldmn:
There aren't checks in place? Risk limits and gap risk analysis?
First New York does this. I know someone who was fired for "style drift." Hired for one strategy and they found him trading futures to take delta views.
Of course. You can get around those easily. Seriously man, if Goldman and JP Morgan can take billion dollar hits on unauthorized trades, don't you think tiny little joe bucketshop prop firms can too? LOL.
Quote from Maverick74:
Of course. You can get around those easily. Seriously man, if Goldman and JP Morgan can take billion dollar hits on unauthorized trades, don't you think tiny little joe bucketshop prop firms can too? LOL.
So people knew he was doing this but risk control didnt?
Or was risk control complicit?
I've never worked in a prop firm but it seems to me unless you are at Susquehanna, 10MM is a lot of money and many firms couldn't survive a margin call that a 10MM loss on convex options would imply.
Even at a bank like JPMorgan or Goldman, losing 10MM in that manner is an event that everyone inside and outside the firm will know about.
Quote from newwurldmn:
So people knew he was doing this but risk control didnt?
Or was risk control complicit?
I've never worked in a prop firm but it seems to me unless you are at Susquehanna, 10MM is a lot of money and many firms couldn't survive a margin call that a 10MM loss on convex options would imply.
Even at a bank like JPMorgan or Goldman, losing 10MM in that manner is an event that everyone inside and outside the firm will know about.
OK, I'm going to give you a different story so maybe you can get an idea of what's out there. We had a guy who on Thursday at the close, day before SPX settlement, sold I don't even remember how many thousands of SPX puts on the closing print. He sold them out of the money and can't remember what prices he got, simply that he did it. I saw the order go through at 3:14 pm central time. By the time I saw the order, they were filled. Risk also saw it but it was too late to do anything about it. We can't close the position and we can't hedge it as the options will go through SET on the Friday morning open. This guy actually got lucky and they expired worthless. I think the firm actually kept the profits. But this is the type of behavior we are talking about. In this particular case, there was nothing one could do. And the trader knew that.
Let me further add this stunt has been done at several prop firms. As I said before, when dealing with options, there are many ways to burn the house down. And most involve a single match and no smoke.