Bottom Line.... whenever your money is "involved" in leverage (managed by yourself or your agent), there is always/almost always the possibility of losing more than your account... stocks, options, futures, pooled assets, et al. Includes real estate in some cases (full recourse financing). One way to avoid this possibility in the equity markets... play leveraged ETFs. You still get the benefits of up to 3x leverage, but you won't get margin calls or incur debits. (Caveat Emptor) Risk management is ALWAYS paramount.
In the simplest and extreme example : You buy at 10 putting up 3 and borrowing 7= liq net is 3 Your 10 investment drops to 1. Now your liq net is 1 - 7=-6
Thanks. My mistake was I thought Optionsellers was a hedge fund and investors invested in a hedge fund should not lose more than what they put in. Didn't understand they were a CTA trading their client's account.
You are not alone. Everybody thought it was a hedge fund thanks to that guy in the apology video terming it so until it was revealed that he was trading on the clients' behalf with POA's.
Yet he traded options. I guess in the right hands, weapons of mass destruction are very effective weapons.
Futures are leveraged products and they were short options. The Margin requirement for those positions does not represent the most you can lose, just what the exchange requires. In addition to what the CME requires, INTL FC Stone has additional risk requirements of a shock of +/-10% and a vol shock of 20 points. The moves must have exceeded that or the manager ignored risk calls. In fact the buy-ins from risk could have helped exacerbate the losses.