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How To Lose $100 Million

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by Gavin in Blog
November 22, 2018 0 comments

I don’t know if this was the except figure, but the loss I’m talking about has been estimated at around this number. I’m talking about this week’s spectacular blow up of an option selling hedge fund.

According to CNBC, James Cordier from OptionSellers .com piled into natural gas derivatives that blew up when the commodity spike 18% in one day.

We don’t know the full facts and perhaps never will but some traders believe the Fund was selling naked puts on crude oil and hedging them with naked calls on natural gas. If that were true, you can understand why the fund below up when you look at the below charts:

Ouchy!

Apparently OptionSellers sent an email to their clients entitled “Catastrophic Loss Event” saying that all their money was lost, and they could owe even more to another firm to cover margin calls.

Yes, you read that right, not only have these people had their retirements savings wiped out, they actually owe more money! Can’t even imagine and I feel such sadness for them.

Never have we had a more stark reminder of the importance of learning to manage your own finances. Any time, you entrust your investments to someone else, you suffer the risk of loss.

The YouTube video apology posted by OptionSellers has now been taken down.

You can’t help but feel sorry for the guy as he is clearly shaken up. Josh Brown, the Reformed Broker is not quite convinced:

When I first watched the video, I actually felt sorry for the guy. He’s on the verge of tears and I think they’re genuine. If you haven’t seen it, he’s basically issuing a public apology to the investors he’s wiped out with an options strategy and hedge fund he took to zero in the course of a month when oil and gas volatility shot up. Worse than zero. Supposedly not only were the accounts wiped out, they actually owe money in margin calls after the fact!

But then some people made me aware of how he was marketing this fund. He called it a retirement strategy. It’s not a retirement strategy, it’s speculation. By the way, to an options trader, every problem calls for an options solution. Just like insurance brokers see insurance as the answer to everything – estate planning, long term investing, asset protection, health care, sex fetishes, etc. To the man with a hammer, everything looks like a nail.

Anyway, I don’t feel bad for James Cordier, or his “clients.” Taking in premiums from selling calls – picking up nickels – and having no idea of the potential for a blow-up is the most childish thing I’ve ever heard. No, the laws of risk and reward are not repealed just because someone sounds sophisticated when discussing derivatives. Risk cannot be eliminated, only transformed. This man sold investors a lie. And now he compounds it with a new lie – “a rogue wave came along and capsized us!” GMAFB.

Google this guy’s sales pitch when you get a chance.

If your strategy bets on the movement of commodities and it isn’t durable enough to survive the movement of commodities, perhaps you have no business managing money in the first place. So no, no sympathy. Fuck you and your cufflinks too.

Karen the Supertrader was another high profile trader to blow up in recent years.

Trade safe!
Gav.

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Options Trading 101 - The Ultimate Beginners Guide To Options

Download The 12,000 Word Guide

Get It Now