Optionsellers.com hedge fund goes bust

[revhappy]

Betting on oil, they have lost money of 290 clients
Here is an emotional video by their CEO.
Watch from 6:11

 

[revhappy]

You can follow this on Twitter:

https://twitter.com/GunjanJS/status/1063586231114698753?s=20

 

[Shiny Things]

What absolute d*ckheads. You have to feel bad for the investors who didn't understand what they were getting into, but I've got less than zero sympathy for the portfolio managers.

They were systematically selling naked calls on natural gas, the most volatile commodity available, for years on end. "Make money by selling commodity options!" was literally their brand. What did they think was going to happen?

 

[Trader11]

Nassim Taleb already warn people not to do this..... Read Fooled by Randomness

 

[Shiny Things]

Nassim Taleb already warn people not to do this..... Read Fooled by Randomness

At the risk of being That Guy, Taleb's strategy of blindly buying options isn't much better. He's made a name for himself recently running "tail risk" hedge funds, that buy equity puts and are designed to go up when stocks crash. The problem is, if stocks don't crash, the strategy bleeds and bleeds and bleeds—and most of the time, stocks aren't crashing! On the whole, a strategy of buying equity puts is going to lose money over the long term. Last I checked, he's had two or three of his tail risk hedge funds shut down because they lost money non-stop for years on end.

I have more sympathy for the Taleb "buy low-delta wings, sleep well at night" strategy; that's how I traded when I did this professionally, and it paid off in spades in 2008 (that was my best year ever by an order of magnitude). But blindly buying low-delta wings is just as destructive to your PnL as blindly selling low-delta wings... it's just that the losses come slowly, instead of all at once.

 

[Trader11]

At the risk of being That Guy, Taleb's strategy of blindly buying options isn't much better. He's made a name for himself recently running "tail risk" hedge funds, that buy equity puts and are designed to go up when stocks crash. The problem is, if stocks don't crash, the strategy bleeds and bleeds and bleeds—and most of the time, stocks aren't crashing! On the whole, a strategy of buying equity puts is going to lose money over the long term. Last I checked, he's had two or three of his tail risk hedge funds shut down because they lost money non-stop for years on end.

I have more sympathy for the Taleb "buy low-delta wings, sleep well at night" strategy; that's how I traded when I did this professionally, and it paid off in spades in 2008 (that was my best year ever by an order of magnitude). But blindly buying low-delta wings is just as destructive to your PnL as blindly selling low-delta wings... it's just that the losses come slowly, instead of all at once.

Hmmm last I heard..... Taleb sells tail risk insurance.... Hence he can survive with premium received from suckers

 

[peipei1]

What is this delta wing thingie? I feel the financial industry is kinda crooked to create so many kinds of products, at its basis it becomes one winner and one loser bet, not even investing in a sense! I think regulators should outlaw all these complex instruments and allow only buying shares of a company and hope your money help it grows its business and/or buying futures of a commodity to locked in prices of raw materials!

 

[Shiny Things]

Hmmm last I heard..... Taleb sells tail risk insurance.... Hence he can survive with premium received from suckers

You sure? Taleb’s entire schtick is that he buys tail risk (and pays premium).

 

[klarklar]

At the risk of being That Guy, Taleb's strategy of blindly buying options isn't much better. He's made a name for himself recently running "tail risk" hedge funds, that buy equity puts and are designed to go up when stocks crash. The problem is, if stocks don't crash, the strategy bleeds and bleeds and bleeds*********and most of the time, stocks aren't crashing! On the whole, a strategy of buying equity puts is going to lose money over the long term. Last I checked, he's had two or three of his tail risk hedge funds shut down because they lost money non-stop for years on end.

I have more sympathy for the Taleb "buy low-delta wings, sleep well at night" strategy; that's how I traded when I did this professionally, and it paid off in spades in 2008 (that was my best year ever by an order of magnitude). But blindly buying low-delta wings is just as destructive to your PnL as blindly selling low-delta wings... it's just that the losses come slowly, instead of all at once.

Would you mind explaining what is this buy Delta wings strategy about? I googled it and got some airplane stuff.

Posted from PCWX using mobile

 

[finale1]

Buy 0.1 delta call
Sell 0.05 delta call

Very OTM strategy. Maybe u make money once in 5 years kind when market blows up

Would you mind explaining what is this buy Delta wings strategy about? I googled it and got some airplane stuff.

Posted from PCWX using mobile

 

[sanzhu]

Iron condor safer

 

[finale1]

To trade commodity futures/options, better to understand fundamentals.

Even seasonality fails.

It’s all fundamentals.

 

[havetheveryfun]

actually im just wondering

so who is the one who won all the millions lost in this case? shouldnt it be the broker ?

 

[gerdhold]

Would you mind explaining what is this buy Delta wings strategy about? I googled it and got some airplane stuff.

Posted from PCWX using mobile

First read up on option delta. Then understand that the conversation was about trading low delta wings.

Low delta is anything less than about 15delta.
'Wings' come from the structure known as the butterfly which represents the kurtosis of the distribution. Or how 'fat tailed' the distribution is.

They are basically low probability bets of extreme events happening or not happening. Buyers of low delta wing options typically overpay (on the high side of the smile) since the zeta is normally highest around the 15 delta point. Market makers dont like to sell low delta since the premium recieved is little relative to the risk of blowing up hence it will normally be above theoretical mid-market for them to provide the liquidity.

 

[revhappy]

actually im just wondering

so who is the one who won all the millions lost in this case? shouldnt it be the broker ?

Maybe market makers too.

 

[Peter36]

What is this delta wing thingie? I feel the financial industry is kinda crooked to create so many kinds of products, at its basis it becomes one winner and one loser bet, not even investing in a sense!

In fact it's not investing, it's speculating.

The bulk of our financial system is not out there to help the economy, to support productive investments, good asset allocation,
it has reduced itself to being nothing but moneygaming, which in the old days was called speculating.

I don't know how many people here would call themselves investors

 

[Peter36]

OptionSeller.com's Q&A on "Debit Balances"

What do I do about this Debit Balance?
You likely received a debit call notice from FC Stone this morning via email. You may receive it in the mail as well. This is a call to add funds to bring the balance back up to zero. Instructions for paying the balance on the notice. Any questions on debit balances can be directed directly to FX Stone at the number on the notice. Stone requests the funds asap but if it takes a few days, that is OK.

What happens if I don't pay the balance?
We recommend balances be paid. If it is not paid, it becomes like any other unpaid bill.





What happens if I don't pay the balance?

We recommend balances be paid...

 

[Shiny Things]

Would you mind explaining what is this buy Delta wings strategy about? I googled it and got some airplane stuff.

Posted from PCWX using mobile

Basically Gerdhold's got the answer; my only debate would be that I used to think in terms of dVega/dVol rather than in terms of zeta. This is the sort of esoterica that you run across after a few years in optionsland.

Options that are a long way away from the money (deep-OTM or deep-ITM, doesn't matter because put-call parity) are effectively crash protection. They only come into play during big market moves, and they tend to be expensive relative to their eventual payoff. So what a lot of people (mostly unsophisticated retail) like to do is to sell those options, pocket the premium, and assume that the worst will never happen. This is what Optionsellers.com did; it's what LTCM did; it's what Victor Neiderhoffer did; and look how well it worked out for them.

I traded the other way 'round. I didn't mind owning those crash-protection options, even though they were relatively expensive (so I used to have entertainingly large time-decay bills every morning), because I knew that if everything exploded I'd be OK. Unlike Nick Taleb I wasn't obsessive about it (sometimes crash protection is too expensive!), but that was generally the way I traded.

actually im just wondering

so who is the one who won all the millions lost in this case? shouldnt it be the broker ?

These guys were trading exchange-traded options; it's not like they were buying and selling against a broker where the broker wins and you lose.

The winners were:
1) The natgas and crude options market-makers who were long the options that OS.Com were short (though they were probably hedging the long calls with short futures, so it's not like they made ALL the money);
2) The people who were outright long natgas and crude futures while OS.Com were scrambling to cover and driving the price against themselves.

(Incidentally, blowing up on natgas is a grand tradition of American markets. Amaranth Advisors famously toasted $5 billion back in '06—the largest trading loss in history at the time—by getting natgas calendar spreads titanically wrong. John Arnold, the guy on the right side of that trade, walked off as a newly-minted member of the tres commas club and launched a rather successful education charity with the money.)

 

[Mr.Canberra]

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