What risk management mistake did optionsellers.com fund manager do to blow up his fund and clients?
- Thread starter helpme_please
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Ditto.
I don't have a high % win rate either... but I also don't have "long losing streaks"... my largest was years ago... 9... but I've smartened-up since then. I have lots of "small win, small loss.. "jerk around" trades". But that's what's necessary to have a high likelihood of "being there" when the trade you want to catch goes.
Reminds me of the definition of a gold mine...
"A hole in the ground with a liar on top".
It's scary to think that there are many cases like this that were simply lucky to get mean reversion to bail them out in time. And they will say ... See our proprietary algos combined with exceptional risk controls worked perfectly!
Energy Losses Prompt Emotional Video to Options Firm’s Clients
OptionSellers.com’s James Cordier says recent losses will likely mean the end of his firm
James Cordier, founder of OptionSellers.com, in 2008. PHOTO: TAMPA BAY TIMES/ZUMA PRESS
Gunjan Banerji
Updated Nov. 21, 2018 10:16 a.m. ET
On Friday, the founder of OptionSellers.com, James Cordier, apologized in an emotional video to clients that losses from bad bets on energy prices would likely lead to the demise of his firm.
Dressed in a suit and tie while sitting in a brown leather chair, he acknowledged that violent swings in the energy market last week caused the firm severe losses, potentially affecting its 290 clients.
He said he had grown to consider individuals around the world as family members and lamented his failure to manage the surge in energy volatility.
“You were my family, and I’m sorry that this rogue wave capsized our boat,” Mr. Cordier said in the video.
It isn’t clear how much money Mr. Cordier’s firm oversaw or how much it lost. Archived snapshots of OptionSellers.com’s website—which has had almost all its pages taken down—indicate that the firm took minimum investments of $250,000. The firm is registered with the Commodity Futures Trading Commission as a commodity-trading adviser.
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Mr. Cordier didn’t comment, saying in an email that “in regards to this matter, this is our clients’ private business. We are in communication with them.”
Dozens of OptionSellers.com investors have contacted Cleveland-based law firm ChapmanAlbin LLC, lawyer Jason Albin told the Journal. He said most understood they could lose their investments, but many didn’t realize they could actually end up owing money.
E-mails to a client viewed by the Journal show OptionSellers.com was forced to start liquidating its positions last week following wrong-way options bets on oil and natural-gas prices.
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It isn’t clear exactly how the company was structured. Mr. Cordier described his firm as a hedge fund in the video. In archived snapshots of its website, the firm indicates it managed accounts of behalf of individual investors.
The emails reviewed by the Journal say that as both oil and natural gas recorded unusually large moves last week, the firm suffered a “catastrophic loss.” Oil tumbled more than 7% on Nov. 13 for its biggest one-day loss in three years, while natural gas posted an 18% rise on Nov. 14 only to erase those gains the next day.
Some clients were left with a negative balance, meaning they are in debt toINTL FCStone Inc.,OptionSellers.com’s clearing firm, according to Mr. Albin and emails reviewed by the Journal. This can occur because of the use of leverage—using a smaller amount of money to make larger bets. Leverage can amplify returns if a bet turns right, but a losing bet can leave an investor owing more money than he or she initially put down.
Accounts managed by OptionSellers.com “had to be liquidated” because of natural-gas volatility, a spokesman for INTL FCStone said in an email. He said INTL FCStone is in full compliance with regulatory requirements.
Evan Torrie, a California-based software engineer, first decided to invest $250,000 with the firm in 2016 after Mr. Cordier pitched commodity derivatives to him, saying such assets diversified holdings. Mr. Torrie had grown concerned about the length of the stock bull market and was looking to invest outside of equities.
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A 2015 marketing document from OptionSellers.com reviewed by the Journal encourages investors to add options-selling to their retirement strategies.
Mr. Torrie, who trades options himself, saw double-digit gains on his investment from its inception to July 2018. Pleased with the returns, he decided to add more money.
But recently, over the course of just a couple of days, he went from having about $470,000 invested with OptionSellers.com to being roughly $150,000 in debt, he said.
On Nov. 13, after oil prices plummeted, Mr. Cordier wrote to Mr. Torrie in an email reviewed by the Journal that he was confident the portfolio would recover from its steep losses at the time.
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But in a Thursday email, also reviewed by the Journal, addressed to Mr. Torrie, OptionSellers.com listed answers to frequently asked questions, including, “Have I lost all the money in my account, then?” The answer given: “Yes.”
Also among the FAQs listed in the email: “What do I do about this Debit Balance?” The firm answered, “You likely received a debit call notice from [INTL FCStone] this morning via email. You may receive it in the mail as well.”
Mr. Torrie said his first thought was “how could they have possibly done this in three days? All that money is wiped out.”
Natural gas is infamous for its volatility. Wagering on different contracts in natural-gas prices can in some cases be known as a so-called widow-maker trade, because of how quickly bets can go bad due to shifts in weather. Numerous commodities hedge funds have shut down in recent years, and one of the last major oil hedge funds has suffered steep losses this year due to the turmoil in energy prices.
In a Thursday client email reviewed by the Journal, OptionSellers.com wrote, “Your account was caught in an extraordinary bout of volatility in the energy markets. In particular, natural gas prices experienced a parabolic move over the past 3 trading sessions. We had a short call position here that was on the wrong side of this. The magnitude of this move was so fast and intense that it overwhelmed all risk measures in place. It was like nothing we’ve ever seen.”
The emails did little to assuage Mr. Torrie. “My lesson is: don’t trust other people to trade your money,” he said.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
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Optionsellers.com were charging customers $75 per lot.
What do you mean by that? How many contracts in a lot?
One.