I know, right ?!?!!. WTF kind of firm Principal or Risk Manager allows that kind of position... And in terms of risk management - a simple free Excel options pricing macro off the internet would have exposed the whole charade.
So often, what passes for "management" in finance (of all sorts!) is knee-jerkedness, *preceded* by severe blinders, lorded-over by CYA maneuvers. This includes Chicago, but also (apparently) Rock_Cap. The answer to your, "Surely, the CBOE has...." is a soft-peddled "no." Nobody wanted the rock the boat, challenge the status quo, bring up ugly numbers, work the late shift, etc etc. I'll bet we've *all* seen it. (But we hold certain institutions to such high station -- "THEY would never act so short-sighted as this...." No-ooooo.
I don't think the CFTC has any reason to question someone simply for purchasing OTM options that expire worthless? What's the Futures Act crime there? You have to remember, federal agencies have assigned jurisdictions and jobs. Finding an employee trying to trick his boss into a higher bonus isn't one of them.
- in such a prop situation if the long option position is not closed does the trader gets the bonus/ payment? I mean are these guys not paid only on "actual Realised profits" also I am assuming that the firm funded him to purchase those 950000 option knowing that worst case scenario is 100% loss so was the 13 million cost of those bought options? I don't get it