Premium Sellers vs. Option Buyers

[newwurldmn]

Was this at a deposit shop or non-deposit shop?

If it was deposit, were there no checks to prevent someone from trading outside the size of their deposit?


I've never worked at a prop firm. My career was primarily at an investment bank where I worked in all the listed businesses but most of my time in prop.

That stunt would have been caught by risk control and even though it was irreversible , you'd be fired regardless of what the outcome was.

Games played at the bank were around marks. Traders who controlled the marks would manage their deltas through the marks than the stock until they got caught. Risk management couldn't see it and pnl true ups only happend once a month.

 

[actionzip54]

Quote from newwurldmn:

Was this at a deposit shop or non-deposit shop?

If it was deposit, were there no checks to prevent someone from trading outside the size of their deposit?


I've never worked at a prop firm. My career was primarily at an investment bank where I worked in all the listed businesses but most of my time in prop.

That stunt would have been caught by risk control and even though it was irreversible , you'd be fired regardless of what the outcome was.

Games played at the bank were around marks. Traders who controlled the marks would manage their deltas through the marks than the stock until they got caught. Risk management couldn't see it and pnl true ups only happend once a month.

Ya, investment banks are known for their risk management....

Are you for real? No place is immune from someone being a fraud or an idiot no matter how stringent the controls. I do remember a few I-banks being a little to "leveraged" in 2007-2008. Greed and stupidity hit all but the most prepared and prudent. Unfortunately , I banks don't contain many of those people.

 

[actionzip54]

I bet LTCM was a model of risk management too....

 

[Brighton]

Maverick, in your 2nd story, was the software unable to be tailored to individual risk limits or did the guy somehow override the system?

 

[trickyname]

If nothing else, just remember: sell a cab, drive a cab.

 

[trickyname]

Quote from Maverick74:

You could have simply closed your position no? I don't understand why so many retail option traders have such an aversion to taking a loss. LOL. It doesn't matter if you are long or short premium, the first knee jerk reaction to most people here is roll, hedge, spread, layer, buy more, sell more, double up, close your eyes, open your eyes, roll again, roll some more, keep rolling, add 7 more legs, neutralize, scalp, don't answer phone from broker trying to call you, look up one way airfares to Brazil, pack bags, roll some options, drive to the airport, do some more hedging from your smartphone, board plane, check quotes before takeoff one more time, land in Brazil, check quotes, realize your smart phone doesn't work there, throw phone in trash, go to beach, never look at another option again.

Reminds me of one of the few customers who still trades S&P options at the CME. The fund's strategy is to buy the 1 piece in put ratios (1x4s, 1x5s, or similar) for close to even money. By buying a "meaty" 20-25 delta put, and selling enough 5 delta puts to finance the purchase, he benefits from small downturns in the markets, and loses almost nothing on rallies.

Fast forward to 2008, and the downturns aren't so small anymore. Fund manager tries to chase his 1x4 and roll using 4x16s, then 16x64s, and so on, refusing to close out the trade. He had enough money that he (barely) made it through, but I have to believe there were way too many sleepless nights involved to make the trade worth it.

 

[Maverick74]

Quote from trickyname:

If nothing else, just remember: sell a cab, drive a cab.

Love it! Although I'll bet dollars to doughnuts no one on this thread knows what a cab trade is. But great line.

 

[RedEyeFly]

Mav, just tried to PM you, your mailbox is full. Do you have an email?

 

[Maverick74]

Quote from trickyname:

Reminds me of one of the few customers who still trades S&P options at the CME. The fund's strategy is to buy the 1 piece in put ratios (1x4s, 1x5s, or similar) for close to even money. By buying a "meaty" 20-25 delta put, and selling enough 5 delta puts to finance the purchase, he benefits from small downturns in the markets, and loses almost nothing on rallies.

Fast forward to 2008, and the downturns aren't so small anymore. Fund manager tries to chase his 1x4 and roll using 4x16s, then 16x64s, and so on, refusing to close out the trade. He had enough money that he (barely) made it through, but I have to believe there were way too many sleepless nights involved to make the trade worth it.

LOL. Yup, roll down and out. Keep repeating until balance says zero.

 

[Maverick74]

Quote from Brighton:

Maverick, in your 2nd story, was the software unable to be tailored to individual risk limits or did the guy somehow override the system?

What risk limits? The guy was running a tiny haircut. Even with the excessive fills I bet his original haircut never exceeded 50% of his equity. I mean look, when guys came into our firm we did the best job we could qualifying them. We did background checks. We did trader interviews. We tried to treat traders like adults the best we could. I've said this before and I'll say it again, a lot of you guys act surprised by this stuff but as I've talked about on other threads, most traders simply don't make money. We had worse blowouts on guys going through their life savings punting futures around.

We had a rather famous ET Trader from this site trade the Russell and had a sizeable position on scalping and went to get out and accidentally doubled up. When he caught his error he froze and did not want to eat the loss right away, it was half his life savings gone in about 5 minutes. So he held the position a little longer and went through all of it. I hate seeing shit like this but it happens. Let me put this a different way for you guys. At our firm, we had traders trade every product under the sun using every strategy under the sun. Most of them simply didn't make money. It's useless to me for you to harp on any one guy and what stupid thing he did when in the end, the results were mostly the same. Sure, some guys went quick, others stayed longer, but most suffered from a lack of discipline.