I quote from your initial statement: Do you think being long gamma or vega would even soften the blow in this situation? There really is no hedges against short gamma on gaps. PS. I don't know much about what Ansbacher does not, but when he was at Bear he was literally just short wings all the time and had little else on.
Well, I have to say I did not know about the fund untill I've read the story, but when I did I wondered why those guys had investors at all. I know only the basic fundamentals of the energy market, but I think everyone who once touched the petro complex knows one thing for sure: Natural Gas has the potential to blow your account up due to the fact that it is very thin and reacts violently to shifts in supply/demand which is primarily due to weather conditions and other random events.. I mean, how many funds can you all recall blowing up because of trading Natty?? Amaranth any1? Everyone knows the NGHxx/NGJxx spread aka the "Widowmaker"...I don't know of any other product that's called fking widowmaker. Now, I don't think anyone would be stupid enough to write naked calls on stuff like VXX, but in these products the option skew reflects the possibility of jumps. But then there is a guy who thinks selling naked calls in NG during the most volatile period (winter incoming) with size is a good idea. And people give him money to do so. So I don't think it was necessarily an emotional mistake and anyone who thinks that has obviously never traded so big that he could move the market. You see a violent move against you and think "this looks ugly, I better lighten up"...but then you realise you have like 1000 contracts and the best offer is 20cars...you hit it, offers reapear 10% higher...for 10cars...and then 20% higher for 5cars. Especially in options, once the market maker realises that someone needs to get out he squeezes you for the last penny. And this is not equity options where you have 10 Market makers in each name. Natty is probably quoted by 2-3 big firms and a few shops. Please don't confuse this scenario with your little retail gambling nightmares where you were too drunk or too greedy to stick to your stop loss. This blow up was like speeding with your 911 turbo that features every electronic assistant. As long as the car stays below a certain limit, even a monkey can drive it fast. If you push it too far, no electronic assistant can fight the laws of physics. So as long as the market stays within a certain limit, you can gasconade about your "risk management" philosophies, your "quantitative risk management system", your Ph.D.'s, FUDOM, and your *fill in bloat word of choice*. Once the market bites, you are just a leaf in a tornado aka. a moron who traded the wrong market way too big at the wrong time.
The time for risk management is when you first place the trade considering he was trading in the millions of dollars. Instead, of naked calls, he could have traded bear call spreads. Sell an OTM call and buy an OTM higher strike call. If both calls expire worthless, you keep the premiums. If it runs up like in this case, the higher strike call you bought as protection mitigates the damage to your account because you would be making monies from that call you bought. You will still lose a lot but, not blow up your account!
Of course it makes a huge difference. Anyone who is long the wings employs an entirely different rehedge strategy being short gamma. In this case having covered the wings would have most likely averted disaster. By the way there were hardly any gaps in the up NG momentum nor on the way down in CL.
First of all, you were saying that Max Ansbacher is long vega and gamma (while his being short the wings was my statement). That's not the same as being long the wings. You are not serious, are you? In any case, I was merely making a statement that there are guys that are selling optionality and figured out a way to stay alive through all sorts of scenarios. There seem to be a lot of "right way or highway" type of stuff going through this board recently.
That is not what I said. I said that Ansbacher was and is also trading options on the long side, and I know that for a fact. Sorry about my misread on the short wing comment you made. But it does not make any difference really: most prudent short gamma traders protect on the wings. Those at least are those I have seen survive the longest. Yes I am serious, see any gaps in below charts? I don't. My point was I have not heard of anyone selling for most part outright premium and survived for all too long. Ansbacher does not just sell premium uncovered. Am happy to invite you to ring them up and inquire if you have doubts in my statement.
True. But these guys are probably are trading in size. Is it possible to trade outside US trading hours in size? There should be gap from Friday close till Sunday open too