I was just going to mention Zanger. His story is probably the most remarkable in that not only did he not use OPM but he didn't use leverage! It was all equity in a Reg T account.
Any hints on how he did it? I thought betonmarkets and retail exotics dealers marked up their products heavily.
Yeah, the edge loss was large, but essentially recovered in 24h on short gamma bets. He parlayed something like 30 bets straight. I know he went from 10k to nearly 800k the first year. Betting-limits were the limiting factor. He opened accounts in his friends names, but always funded those accounts and shared the proceeds. IOW, he would've made more if not for spreading the wealth. BOM's bets are generally very close to bank indications and volbroker in FX. Maybe 120bp edge loss on index exotics (DNT at 54 with FV at 48). FX is much tighter.
No, outright short gamma bets in the exotics. Mainly double-no-touches and then he migrated to short lookbacks with bank dealers. IIRC he never hedged until he reached into the 10s of millions.
what was the guy's background - education, experience ? Did he use to work at an exotic desk in a bank before ? Your average hedgefund trader or even an average CTA trader can't arb exotics.
He didn't arb anything. I arbed Oanda for six-figures in 2008, and that was with $20k limits per SSN. I also closed Trinitas Capital's retail operation via arbs in SP500 component exotics. So it can be done. He was making outright bets on knockouts. No arb. No hedge. Obviously as he became larger the scale required laying off the risk, but that didn't occur until he was already into 8-figures. MBA from INSEAD. Worked for GS in London under the head of prop/structured products (guy with hyphenated name, can't recall).