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I just found out from someone in contact with OptionSellers.com clients that yes they were short March 5.00 calls. But they then rolled up to 6s & 7s. Which when futures screamed higher didn't work.
Also was told they may have been short March 4.50s and had rolled them up to 5s before Wed.
In case a position of short options is doubling sometimes I buy back half of the position to reduce risk. In this case, I give away all potential profit of the trade, and I am satisfied if it breaks even.
If a trade is successful, I often buy back the option at 50 % and sell a strike closer to the current price of the underlaying, thus again selling 100 %. Or selling the same strike price, but more DTE, to achieve again 100 %.
According to my experience, it is a good idea to reduce trades that show that something unexpected has happened. Or close them completely. And enlarge trades that work well.
It’s terrible what they allowed to happen to their clients, especially since many of them are retirees with little personal experience or sophistication with derivatives.
During my day job I am former prosecutor turned securities attorney and have been researching and conducting interviews pertaining to what happened at OptionSellers.com. Ron, any chance you (or any other member of our community) would be willing to send me a confidential message with any contacts or further information? It would be a tremendous help in my efforts to assist those that have been impacted.
I’m a trader and have been an active paying member of this community for numerous years. I am not selling anything (except for options on futures) and am simply trying to conduct research.
I learnt a lot from reading the book by Cordier & Gross, as many other option sellers did. We probably will not get another book by these authors, but what can we learn from the recent incidents ?
When selling options, avoid weather markets. Of course, weather influences the prices of many commodities all around the year. But there are periods, when a change of weather can change the price of a commodity in a dramatic way, and can change volatility in a dramatic way. Examples are the NGZ to NGH contracts from November until February, but also corn contracts in June / July or coffee contracts in July (frost in Brazil ?) or September (flowering). It is tempting to sell options at these times of the year because of the high volatility, but there is a reason for this high volatility.
When selling options, liquidate when you have to liquidate. The price of Natural Gas moved up severely and with strong volume since 5th of November. There were several days when it was possible for Cordier & Gross to exit at fair conditions. Of course, it is no fun to accept a severe loss. But sometimes it is the only way to avoid a disaster.
When selling options, check the availability of options to buy back. It is not the first time that large firms get into severe problems selling a large number of NG OTM calls at this time of the year, and having problems to buy them back. It looks like market makers are waiting for such situations, and make tons of money selling options to companies in severe problems. Cordier & Gross should hVW knowN these examples.
Selling (F)OTM calls is riskier than selling ATM or close to the money OTM options in so far, as an abrupt rise in volatility is much more harmful than for ATM options. The risk to get in the money of course is larger for closer to the money options, but as long as there are enough days until expiry, this is not really a problem. The risk of an exploding value of the options due to exploding volatility is significantly larger for (F)OTM options.
Above all: The most important target in trading is not to make money. But to preserve the capital.
Received another email today, wont post it but basically said that remaining positions will be held by the clearing firm FC Stone and debit balances need to be cleared.
I agree with some of the previous posts here: they tout that their way of trading/investing is safer and will be protected against market volatility like we are experiencing in the equity markets. Lot of people lost everything, im sure some of them are million dollar accounts given to them by grandma/grandpa.
Again, i got lucky as one of the main reasons I decided to get out was the fact they were not following their own risk parameters of closing out positions as outlined in their book.
Anyways i was able to pull up my last statement and they were short the following /NG call:
Feb 19 4.0
Feb 19 4.5
Mar 19 4.15
Mar 19 4.5
Mar 19 4.65
Mar 19 4.75
Mar 19 5
