People have blown up on a variety of far-end exotic risks. Heck, I know a guy who blew up being LONG a bunch of SPX tail risk in the fall of 2011 (now, THAT was an achievement if you ask me).
Yeah, that's right... And sure, there were casualties. Obviously, it was all subsequently overshadowed by the bigger dramas of 2008.
Yeah, there are all sorts of stories, across both the buyside and the sellside. The story is always the same: lack of respect for the power of leverage.
-- delta hedged his tail puts into the August expiration -- bought more crash protection (var/vol, specifically) Guess what happened?
"the market can remain irrational a lot longer than you can stay solvent." The Donnap Corollary to this saying is that "the market can remain irrational a lot longer than you can stay rational."
I will most likely be wrong, but if I recall, there was some kind of small crash in august 2011, so by delta hedging into august expiration, he probably missed the volatility increase that would have made his bet profitable and used the margin left to buy some further protection only to see the volatility go back to normal? Sorry if that wasn't a real question.