At the end of the day Surf, he made a very very large trade that blew up in his face. No dancing around that fact. If he wasn't so margined perhaps he could have survived July/Aug. Hell...maybe he could have added near the bottom and turned it into a breakeven/winning trade. But the fact is....his strategy was flawed and he paid for it. Yes...the CME changed margin requirements....but a guy of his stature/experience should have been ready for something like that considering the move in the vix. He easily could have cut back his position when shit got crazy..but he chose not to...and got hurt. Nobody to blame but himself.
Jeez why is it so hard for some people to admit he blew up or lost money. Happens all the time in the market, especially here at ET. The man is human lol. Whether it was change in margin or vol jumps, he blew up and out and it was not for some unfathomable event. Although one cannot predict a credit crisis, a vol spike on unusual events/news happens often enough to make an option seller aware.
If he didn't overleverage, and cut loss based on margin requirement, would he survive? I am just trying to learn risk management from his loss.
If he wanted to make outsized returns on the upside, which seems to have been the very purpose of the fund in the first place, he could have ALSO bot a touch on the upside, an April 1800, perhaps. Or, in plain vanilla terms, sell atm calls and buy more otm calls with the proceeds, at a 1X2 ratio, perhaps. Then again, if that is what Octane wanted, a fund that acted like a otm call, why didn't they do it themselves?
A touch is long gamma across all points on the distribution, so a deep otm bull vertical is a close analog. Skew forces deep otm deltas up [long dspot]. Why outsource at all? FoF is pointless.
You can just imagine the conversation between the swiss and Matador: "Euhh, Victor, how eez my monay doooin?? Ze dollaire is selling off Victore, zis iz no goood. Come on, you are ze matador right, make us some monay, vee vill invest more wiz you, vee promisse.... Euhh Victorre, u zere?...(line goes dead)"
"Euhh Victorre, u zere?..." (long silence) Euhh, victoore, vee hahve vaays of making you taahlk." nitro
Not sure if this was posted but this week's issue of the New Yorker Magazine has a feature on Victor. http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy