I have been doing a little math and this loss just seems impossible to have happened. NG actually opened at the NY 9:30 cash session on Nov 14 at 4.401 down from its early morning high of 4.929. That is .677 above its Friday Close so that would be a loss of $6,770 for a single futures contract that was short at the Friday close. According to the article in Post #5 of this thread, customer funds totaled 225 million and assume a total customer debit balance of 10% which would make it a 250 million total loss on the trade. To lose that much in a pure short futures position would require 36,927 contracts. (From Fri close to Wed cash open) Now, these OTM naked calls that were sold at 5 cents would have had a delta somewhere in the range of .05 to .10 so it would take many more calls than futures to equal the 250 million because the call delta has to work itself up to 1.00 so it is not going to go up cent for cent like the futures. I have never even looked at the NG market before this thread so maybe I am missing something but I don't think so. Looking at it from the sellers perspective selling an option for 5 cents would net $500 per contract. On 225,000,000 in assets a 3% total return would be 6,750,000 or 13,500 contracts total sold. So if he lost a full 50 cents or $5000 per option the total loss would only be $67,500,000. Huge loss but still in business. I guess I am so worked up on this because in a prior post I said I looked at this guy many years ago and trusted him and his investment model. I vetted him for a friend and even put my blessing on the investment. At that time minimum was 250K and would have only been 10% of his available investment funds but I am so thankful that he did not do it. I just do not see how this guy could have lost it all on one freeeking trade when he did not need to. When he sells options with a far out expiration and a far out strike price he has plenty of time to exit before it causes real problems. This catastrophic parabolic move that did not allow his exit procedures to work is pure BS nonsense. He had plenty of time to work it out with the MM.
Tick increment is 0.001, $10 per tick. https://www.cmegroup.com/trading/energy/natural-gas/natural-gas_contractSpecs_options.html
"If the gamma does not get you, then the Vega will" (c) Oh, and vanna/volga and other good stuff. You do know that someone has posted all of the strikes and expiration, we can check where the vol went, right?
If you take a look at the spread sheet, you will notice he continued to sell calls as the position went against him. He had no intention of hedging his delta/vega exposure (and all his other 2nd order risks). To me it looked like his trading model was "It won't go there and if it does...well it won't go there, so why think that far ahead? ". The amount of leverage he was packing, delta wasn't even what blue him up. "With both hands on the wheel", I don't think he had enough time(hands) to learn about hedging his 2nd/3rd order greeks while he was getting phone calls from angry clients + broker. It happened pretty fast + the gap is really what cleaned him out.
Swaggert, what a good analogy, who could forget that guy...?? Sexual scandals with prostitutes in the late 1980s and early 1990s led the Assemblies of God Church to defrock him. As a result of the scandals, Swaggart temporarily stepped down as the head of Jimmy Swaggart Ministries.
"....On February 21, 1988, without giving any details regarding his transgressions, Swaggart gave his now-infamous "I have sinned" speech. He tearfully spoke to his family, congregation, TV audience, and finally said "I have sinned against You, my Lord, and I would ask that Your Precious Blood would wash and cleanse every stain until it is in the seas of God's forgetfulness, not to be remembered against me anymore." On October 11, 1991, Swaggart was found in the company of a prostitute for a second time. He was pulled over by a police officer in Indio, California, for driving on the wrong side of the road. With him in the vehicle was a woman named Rosemary Garcia. According to Garcia, Swaggart had stopped to proposition her on the side of the road. She later told reporters, "He asked me for sex. I mean, that's why he stopped me. That's what I do. I'm a prostitute." This time, rather than confessing to his congregation, Swaggart told those at Family Worship Center, "The Lord told me it's flat none of your business." Swaggart's son Donnie then announced to the stunned audience that his father would be temporarily stepping down as head of Jimmy Swaggart Ministries for "a time of healing and counseling." LOL FFS!
Well said. We have all done that on a small trade scale. Double down Then Double down again because you now have a lower cost average and the rebound will get you even sooner. It never worked for me but for a pro to risk his entire client base??? Well, I guess anyone can go on "Tilt" as the sports betters call it. Just another lesson for us small timers to stay disciplined.