The adventures of leveraged naked ootm option sellers
Ah the famous "free money" option sellers.
Ah the famous strangle strategy.
Option sellers. Ok.
Naked option sellers. Sooo...?
Way out of the money naked option sellers. Let me think...
Way out of the money strangle naked option sellers. Getting good.
Ultra Leveraged Way Out Of The Money Strangle Naked Option Sellers. Oh boy.
Ultra Leveraged Way Out Of The Money Strangle Naked Option Sellers That Never Cut Their Losses. Not fair for other Darwin award contestants!.
They have to be doing it on purpose.
A strangle is an absolutely garbage strategy where the writer sells (slightly) out of the money options on both sides.
The maximum profit happens when the price stays between both strike rates. Not going to make a full explanation and a drawing, but what is important is it involves option sellers that take small premiums win very often but are at high to unlimited risk.
The premium basically means that even if the price goes against you a bit you are still in the green. Out of the money means you have even more breathing space before the price gets to a losing area, and then additionally you have the opposite side premium as additional "breathing room", which in all means the price has to move very much for you to even start being worried. But when it goes that far... careful.
Depending on how out of the money the option is the premium can get pretty low... So the option seller won't make alot of money. There is no free lunch.
A summary of those strategy is "Picking up pennies in front of freight trains."
Ok here is a drawing xd
A few people use this, and I know it is taught by Tom Sosnoff that runs a brokerage. You might recognize him in some old documentary & interviews about the 1987 (he was a market maker obligated to buy people bags and "add to loser" and they all were running out of liquidity & had to beg banks for more money so the whole system would not collapse). He is the creator of thinkorswim that he sold to TD Ameritrade for a big bag of money.
He published a video recently where he bashed the robinhood effect where down synd- er I mean young credulous investors (and legends like Portnoy) are getting enabled to gamble on risky & complex products they do not understand. Oh wait no he praised it all, said it was wonderful and a new paradigm. Sad. "Hurray optimism" (until the suicide). Not sure what my opinion of him is right now.
On the long run those strangle work, and ... well I can't say any idiot can do those clearly with all the clowns blowing up ... but it does not require any prediction ability (you are better off if you can predict low volatility thought), it is maybe complex to understand for novices at first but rather "easy".
Someone running such a strategy will often win, and get consistant profits, but the profits are just... small. And funds or individuals using this strategy have to be prepared for big moves that sometimes happen and have a plan to hedge at some point.
Tom Sosnoff tells people to "trade small trade often" (another broker telling people to trade often gee didn't expect that).
Since this strategy makes little profit, fools have a tendancy to use leverage, sometimes alot.
Warren Buffet once said, or more than once, way more, that leverage was the best way to wipe out your wealth.
Especially when mixed with ignorance. He uses leverage himself, but not like this, not like these guys...
The only way I see leverage maybe making sense with those strategies is say you make 1% a year, so you'd put 90% of your money in a mix of equity indices & risk free with low correlation, then use 10 leverage on the remaining 10% that is used to write options, keep risk managed, so then you make 10% on the 10% and if something goes real wrong you have deep pockets, 9 times the amount... Using a bit or even 2-3 times more capital and more leverage too would not even result in getting wiped out for those that did. They REALLY asked for it.
There are plenty of naked option sellers that got wiped out, included hyped or famous ones. Naked selling means you do not own the underlying (so if you never buy until the client exercises his right you will have to first buy the asset at whatever price, or have to buy it from him if he is short potentially at a much higher price than the market price).
James Cordier from OptionSellers dot com, Victor Niederhoffer, Karen Supertrader, LJM Preservation And Growth Fund (HAHAHAHA they have a great sense of humor).
James Cordier used way out of the money options, so it would look something like that:
Wow! We found the holy grail! You cannot lose!
He really got zero sympathy, and even his clients did not get much. They either knew it was risky or did not bother how to even put this they did not even bother looking at was option selling was somehow?
James Cordier was making tiny profits with huge risk, had very high winrates, and because he made little profits he used extreme leverage to get any significant amount out. He is the epitome of the concept "Picking pennies in front of a freight train". They should use his picture in encyclopedias.
Those leverages aren't even poor risk management at that point we reached another stage. Seriously this guy is an absolute psychopath.
Victor Niederhoffer used to be a rather famous fund guy, he worked with Soros, he was rather popular I think he wrote in big journals, probably was on tv regularly. He was "one of the best" making 30% a year for 20 years, famous people held him in high regard, he was sort of a mentor to guys that are famous today. But he missed a few braincells. He sold a big amount of naked puts in 1997 then the market crashed. Rekt. Another "myfxbook" loser. Maybe he was just bad all along and got lucky for 20 long years. Outlier. He probably whine that it was just "20 sigma bad luck". He blew up again 10 years later 😂. Rekt by the trash securities crisis of 2007. Oh ye another "free money one". If you saw the movie "the big short" you might remember scenes where bankers were laughing and partying at the "idiots that bought options against CDO/MBS". He was not a banker himself so Bush did not use taxpayer money to bail him out. He was not unlucky actually, he was very lucky to have lasted 20 years the previous time. Dumb people often have Dunning Kruger...
Karen Supertrader was a random old lady that got into the Sosnoff noob strategy. It is very hard to lose money while keeping it small with that one, so idk I guess this is why he pitches it to complete noobs that would all become day traders and lose their money quickly. Hey they'd just lose their money otherwise, at least here they are making a little. It is true, can't even blame him he is maybe saving noobs. Should just let natural selection do its job just like getting rich slow is actually not slower, helping people is not actually helping.
She was an outlier in a normal distribution, mistook that for greatness, and started a fund managing to get idiots to invest hundreds of million. 150 I think.
She ended up losing if I recall a good 50 million, hide the losses as unrealized (which she rolled over each month and used new positions to offset), while still collecting fees.
I remember seing her interview on how great she was and thinking "ye give it a little while" and then doing some research, and oh ye blew up haha.
Didn't see that coming.
I don't get people brains. If people use certain strategies, it is mathematically impossible, literally impossible, they can get certain returns without taking huge risk or committing fraud. Why is it so hard for the creatures on this planet (especially regulators) to comprehend? It is physically impossible. Proven. This is not economy or climate science where randos come up with their ooga booga opinions and apocalyptic calls, mathematical PROOF means it is true period. Really blows my mind. How are all those mouth breathers even alive?
If a strategy no matter what is contained in Upper Bound Lower Bound and we are outside of the bounds it's not because of divine intervention or a parallel universe. I don't even know how they think. Lmao I crack up when I try to imagine their thought process. It's like the market moves 10% in a month, and someone tells you they simply bought & held, made 60%, and used no leverage. And some people are stupid enough to think this is possible??????????????????????????????????????? Wow.
LJM Preservation And Growth is just the funniest. "Preservation" in the name, then goes to the option selling casino with infinite leverage.
People trusted it blindly because it has preservation in the name? XD Reminds me of some groups in the USA self proclaimed "good guys".
Idiots that fall for this get the karma they deserve.
You can find stories and read about it on the internet it is all over the place. The best bits is how they always find excuses.
The fund came up with "there is no way we could have predicted the 911 attacks". The stupidity of this excuse is really beyond.
I don't even know where to start. Well I don't think I need to explain. They clearly were in the wrong business entirely.
"Oh no there are risks in the business" 😂
One of optionsellers client shared a google doc of his 1 million (in total) portfolio, here it is, it goes from left to right day by day so you can see how the positions evolve and how James Cordier holds onto his losers forever, until death pulls them apart.
docs.google.com/spreadsheets/d/1-oj5UkqU0tMHrMnIEiuIYmTlxVWoU-VJqumykJ3IMUA/edit
You can find the second to last idea James Cordier published on seeking alpha here:
seekingalpha.com/article/4216814-option-selling-opportunities-good-scary
He got all excited at the "free money" (greed & euphoria) and then sh** his pants (fear), held the bags, blew up. The he was less excited (pain regret sorrow etc).
Emotions -> Emotions -> Emotions. Mistakes -> Mistakes -> Mistakes. Like a baws. And the guy had 20 years experience or so.
His last idea was a short on coffee and he was very right. Should have just went short for real with leverage since he was gambling anyway rather than sell for "only" 1.8 million.
The website has his ideas since 2009.
You know these people I think they just hate losing. He probably was right often enough but I am not going to backtest his ideas got better things to do (got a new zombie game to try haven't been able to play games in weeks because idk they bore me but at the same time I really need a distraction I must be alone having to force myself to play games rather than the other way around).
It is not the case for all of them of course, but I am sure alot would make money without having to use 50 leverage if they just applied their analysis and accepted to take the risks, rather than look for some really stupid trick to always win.
As a speculator you get rewarded for absorbing risk/volatility. Sometimes down sometimes up, but on average more up than down.
How can some people be in the business, and not as market makers or arbitragers or brokers, for 20 or 30 years and still look for "sure thing" strategies and be afraid of taking a loser? Who cares if the portfolio moves a bit in 10 or 20 years the end result is what will matter.
It is clearly not for every one.
They should know better and be prepared for the "big events", but they go pavlov brainwash and emotional and feel good about it, as long as it has not happened they think it won't (and even once it does some don't even learn and think they really fell under the wrath of god and did nothing wrong as demonstrated by Victor Niederhoffer, seriously how dumb is this guy? I don't have a quarck of respect for him.)
If you are able to survive those big events, accept small drawdowns and they do not cause you to make mistakes, you are already ahead of many.
Another obstacle to be making money in this game. When you "have it" it really seems like a no brainer, but yes there really are alot of people unable to climb that obstacle.
Aren't 90% of casual investors bagholders? With "strong hands". So afraid to take a loss. Strong hands ye right, weak chins.
The receding chins are using computers now so they don't piss themselves, but I don't think the computers will be able to do everything, just the small day trading.
If we get to the point computers can go THAT far to predict the future weeks away (not just M5 stat arb etc) we won't even need markets anymore anyway, and we'll be too busy visiting other galaxies xd
Imagine science without all the dogmas and politics. Imagine politics without all the politics. And so on. I ain't worried. My tip to profitable speculators: learn to invest, find a passive income stream, you never know if you'll still be making money in 10 years, but don't be too worried all opportunities just disappear (unless communism).
Yes you never know if it is a pullback or the end, it is easy to look at it in hindsight compared to being in it and think "oh it just goes up".
Ah the famous strangle strategy.
Option sellers. Ok.
Naked option sellers. Sooo...?
Way out of the money naked option sellers. Let me think...
Way out of the money strangle naked option sellers. Getting good.
Ultra Leveraged Way Out Of The Money Strangle Naked Option Sellers. Oh boy.
Ultra Leveraged Way Out Of The Money Strangle Naked Option Sellers That Never Cut Their Losses. Not fair for other Darwin award contestants!.
They have to be doing it on purpose.
A strangle is an absolutely garbage strategy where the writer sells (slightly) out of the money options on both sides.
The maximum profit happens when the price stays between both strike rates. Not going to make a full explanation and a drawing, but what is important is it involves option sellers that take small premiums win very often but are at high to unlimited risk.
The premium basically means that even if the price goes against you a bit you are still in the green. Out of the money means you have even more breathing space before the price gets to a losing area, and then additionally you have the opposite side premium as additional "breathing room", which in all means the price has to move very much for you to even start being worried. But when it goes that far... careful.
Depending on how out of the money the option is the premium can get pretty low... So the option seller won't make alot of money. There is no free lunch.
A summary of those strategy is "Picking up pennies in front of freight trains."
Ok here is a drawing xd
A few people use this, and I know it is taught by Tom Sosnoff that runs a brokerage. You might recognize him in some old documentary & interviews about the 1987 (he was a market maker obligated to buy people bags and "add to loser" and they all were running out of liquidity & had to beg banks for more money so the whole system would not collapse). He is the creator of thinkorswim that he sold to TD Ameritrade for a big bag of money.
He published a video recently where he bashed the robinhood effect where down synd- er I mean young credulous investors (and legends like Portnoy) are getting enabled to gamble on risky & complex products they do not understand. Oh wait no he praised it all, said it was wonderful and a new paradigm. Sad. "Hurray optimism" (until the suicide). Not sure what my opinion of him is right now.
On the long run those strangle work, and ... well I can't say any idiot can do those clearly with all the clowns blowing up ... but it does not require any prediction ability (you are better off if you can predict low volatility thought), it is maybe complex to understand for novices at first but rather "easy".
Someone running such a strategy will often win, and get consistant profits, but the profits are just... small. And funds or individuals using this strategy have to be prepared for big moves that sometimes happen and have a plan to hedge at some point.
Tom Sosnoff tells people to "trade small trade often" (another broker telling people to trade often gee didn't expect that).
Since this strategy makes little profit, fools have a tendancy to use leverage, sometimes alot.
Warren Buffet once said, or more than once, way more, that leverage was the best way to wipe out your wealth.
Especially when mixed with ignorance. He uses leverage himself, but not like this, not like these guys...
The only way I see leverage maybe making sense with those strategies is say you make 1% a year, so you'd put 90% of your money in a mix of equity indices & risk free with low correlation, then use 10 leverage on the remaining 10% that is used to write options, keep risk managed, so then you make 10% on the 10% and if something goes real wrong you have deep pockets, 9 times the amount... Using a bit or even 2-3 times more capital and more leverage too would not even result in getting wiped out for those that did. They REALLY asked for it.
There are plenty of naked option sellers that got wiped out, included hyped or famous ones. Naked selling means you do not own the underlying (so if you never buy until the client exercises his right you will have to first buy the asset at whatever price, or have to buy it from him if he is short potentially at a much higher price than the market price).
James Cordier from OptionSellers dot com, Victor Niederhoffer, Karen Supertrader, LJM Preservation And Growth Fund (HAHAHAHA they have a great sense of humor).
James Cordier used way out of the money options, so it would look something like that:
Wow! We found the holy grail! You cannot lose!
He really got zero sympathy, and even his clients did not get much. They either knew it was risky or did not bother how to even put this they did not even bother looking at was option selling was somehow?
James Cordier was making tiny profits with huge risk, had very high winrates, and because he made little profits he used extreme leverage to get any significant amount out. He is the epitome of the concept "Picking pennies in front of a freight train". They should use his picture in encyclopedias.
Those leverages aren't even poor risk management at that point we reached another stage. Seriously this guy is an absolute psychopath.
Victor Niederhoffer used to be a rather famous fund guy, he worked with Soros, he was rather popular I think he wrote in big journals, probably was on tv regularly. He was "one of the best" making 30% a year for 20 years, famous people held him in high regard, he was sort of a mentor to guys that are famous today. But he missed a few braincells. He sold a big amount of naked puts in 1997 then the market crashed. Rekt. Another "myfxbook" loser. Maybe he was just bad all along and got lucky for 20 long years. Outlier. He probably whine that it was just "20 sigma bad luck". He blew up again 10 years later 😂. Rekt by the trash securities crisis of 2007. Oh ye another "free money one". If you saw the movie "the big short" you might remember scenes where bankers were laughing and partying at the "idiots that bought options against CDO/MBS". He was not a banker himself so Bush did not use taxpayer money to bail him out. He was not unlucky actually, he was very lucky to have lasted 20 years the previous time. Dumb people often have Dunning Kruger...
Karen Supertrader was a random old lady that got into the Sosnoff noob strategy. It is very hard to lose money while keeping it small with that one, so idk I guess this is why he pitches it to complete noobs that would all become day traders and lose their money quickly. Hey they'd just lose their money otherwise, at least here they are making a little. It is true, can't even blame him he is maybe saving noobs. Should just let natural selection do its job just like getting rich slow is actually not slower, helping people is not actually helping.
She was an outlier in a normal distribution, mistook that for greatness, and started a fund managing to get idiots to invest hundreds of million. 150 I think.
She ended up losing if I recall a good 50 million, hide the losses as unrealized (which she rolled over each month and used new positions to offset), while still collecting fees.
I remember seing her interview on how great she was and thinking "ye give it a little while" and then doing some research, and oh ye blew up haha.
Didn't see that coming.
I don't get people brains. If people use certain strategies, it is mathematically impossible, literally impossible, they can get certain returns without taking huge risk or committing fraud. Why is it so hard for the creatures on this planet (especially regulators) to comprehend? It is physically impossible. Proven. This is not economy or climate science where randos come up with their ooga booga opinions and apocalyptic calls, mathematical PROOF means it is true period. Really blows my mind. How are all those mouth breathers even alive?
If a strategy no matter what is contained in Upper Bound Lower Bound and we are outside of the bounds it's not because of divine intervention or a parallel universe. I don't even know how they think. Lmao I crack up when I try to imagine their thought process. It's like the market moves 10% in a month, and someone tells you they simply bought & held, made 60%, and used no leverage. And some people are stupid enough to think this is possible??????????????????????????????????????? Wow.
LJM Preservation And Growth is just the funniest. "Preservation" in the name, then goes to the option selling casino with infinite leverage.
People trusted it blindly because it has preservation in the name? XD Reminds me of some groups in the USA self proclaimed "good guys".
Idiots that fall for this get the karma they deserve.
You can find stories and read about it on the internet it is all over the place. The best bits is how they always find excuses.
The fund came up with "there is no way we could have predicted the 911 attacks". The stupidity of this excuse is really beyond.
I don't even know where to start. Well I don't think I need to explain. They clearly were in the wrong business entirely.
"Oh no there are risks in the business" 😂
One of optionsellers client shared a google doc of his 1 million (in total) portfolio, here it is, it goes from left to right day by day so you can see how the positions evolve and how James Cordier holds onto his losers forever, until death pulls them apart.
docs.google.com/spreadsheets/d/1-oj5UkqU0tMHrMnIEiuIYmTlxVWoU-VJqumykJ3IMUA/edit
You can find the second to last idea James Cordier published on seeking alpha here:
seekingalpha.com/article/4216814-option-selling-opportunities-good-scary
He got all excited at the "free money" (greed & euphoria) and then sh** his pants (fear), held the bags, blew up. The he was less excited (pain regret sorrow etc).
Emotions -> Emotions -> Emotions. Mistakes -> Mistakes -> Mistakes. Like a baws. And the guy had 20 years experience or so.
His last idea was a short on coffee and he was very right. Should have just went short for real with leverage since he was gambling anyway rather than sell for "only" 1.8 million.
The website has his ideas since 2009.
You know these people I think they just hate losing. He probably was right often enough but I am not going to backtest his ideas got better things to do (got a new zombie game to try haven't been able to play games in weeks because idk they bore me but at the same time I really need a distraction I must be alone having to force myself to play games rather than the other way around).
It is not the case for all of them of course, but I am sure alot would make money without having to use 50 leverage if they just applied their analysis and accepted to take the risks, rather than look for some really stupid trick to always win.
As a speculator you get rewarded for absorbing risk/volatility. Sometimes down sometimes up, but on average more up than down.
How can some people be in the business, and not as market makers or arbitragers or brokers, for 20 or 30 years and still look for "sure thing" strategies and be afraid of taking a loser? Who cares if the portfolio moves a bit in 10 or 20 years the end result is what will matter.
It is clearly not for every one.
They should know better and be prepared for the "big events", but they go pavlov brainwash and emotional and feel good about it, as long as it has not happened they think it won't (and even once it does some don't even learn and think they really fell under the wrath of god and did nothing wrong as demonstrated by Victor Niederhoffer, seriously how dumb is this guy? I don't have a quarck of respect for him.)
If you are able to survive those big events, accept small drawdowns and they do not cause you to make mistakes, you are already ahead of many.
Another obstacle to be making money in this game. When you "have it" it really seems like a no brainer, but yes there really are alot of people unable to climb that obstacle.
Aren't 90% of casual investors bagholders? With "strong hands". So afraid to take a loss. Strong hands ye right, weak chins.
The receding chins are using computers now so they don't piss themselves, but I don't think the computers will be able to do everything, just the small day trading.
If we get to the point computers can go THAT far to predict the future weeks away (not just M5 stat arb etc) we won't even need markets anymore anyway, and we'll be too busy visiting other galaxies xd
Imagine science without all the dogmas and politics. Imagine politics without all the politics. And so on. I ain't worried. My tip to profitable speculators: learn to invest, find a passive income stream, you never know if you'll still be making money in 10 years, but don't be too worried all opportunities just disappear (unless communism).
Yes you never know if it is a pullback or the end, it is easy to look at it in hindsight compared to being in it and think "oh it just goes up".
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