Looks like their office was a few miles from my house. Perhaps they would want me to take over their office lease, for 10 cents on the dollar
Sorry I have to ask since I am new to options: What are the most basic money management rules if you are on the sell side of naked NG and Crude?
So... Would converting the position to a strangle have helped protect their position? I. E sell naked puts.
I've sold naked in the past, never really liked it. It Didn't even feel like "trading." I could be wrong, but I feel like many traders fail, and then they discover selling naked, and it is their holy grail that they finally found. It works great and it feels good to make money so they continue. What they fail to understand is selling SPX puts is simply just being long the SPX with leverage. This guy was selling calls on NG... he was simply short NG with leverage. In my opinion of course...
Converting to a strangle would have put monies into your pocket but, the premiums collected would be very little to offset the huge losses. A better way would have been to instead, of naked calls, you sell OTM call at a lower strike price, buy a higher strike OTM call. That would be a bear call spread trade. Now, the higher strike OTM call that you bought gives you some protection if the trade goes against you. If it runs up, the call option you bought goes up in price and reduces your losses. You will still suffer substantial losses but, not totally, wipe you out as what happened in this case. If both options expire worthless, you keep the premiums collected from that bear call spread trade.
Because 1) Not cutting losses when he should've because like I said, he does not believe it could happen since he's never seen it. So my guess is he was holding onto the position thinking it would turn around. The storm would pass but unfortunately it never passed and it capsized his boat, using his own terminology. 2) The leverage is way too high. He had to use the huge leverage to get into huge position to consistently earn the 25% return as he promised to his "high networth" clients that he calls "family" since the premiums from the options that he writes is so low as the strike is 50% to 100% OTM.
Playing that game, I can't see returns being north of 10% WITHOUT taking extraordinary risk... makes no sense to me. You are better off buying SPY's and writing puts targeting 3 to 4% in "extra" yield from writing puts. If my trading account ever gets too big.... that's exactly what I will do with my excess cash... I'm a BIG dreamer
You made a good point. The price run in natural gas and oil took a few days and there were no big gaps in between. If it was a bad trade, the trader should be able to cut his losses and run to safety. I am guessing that James Cordier got killed because he wanted to run but could not because his position was too large. In other words, it was a position sizing mistake.