A quick recap for those of you who are unfamiliar with the legend:
OptionsSellers.com was a fund that marketed itself as a money manager for mid-upper class folks (doctors, etc) using trading methods that consistently outperform the S&P500. Their strategy? Selling naked options on crude oil and natural gas. More specifically they were using a method called the short strangle, selling both put and call options with a wide delta between strike prices. Using this strategy they could rake in the cheddar so long as the price does not move outside the payoff region.
What could go wrong with this? Apparently nothing, at least for a couple years. To their credit, OptionsSellers had somehow managed to avoid a catastrophic loss event for years while selling naked options on highly volatile commodities. Their returns were so endearing that they attracted hundreds of millionaire clients from all over the country.
But then November 2018 happened. Natural gas futures spiked tremendously and shatterd the whole fund in minutes (literally minutes). Turns out selling naked options you can’t afford to cover is a very bad idea.
Suddenly clients who had multi-million dollar accounts the day before were receiving emails about owing money. OptionsSellers wasn’t answering their calls and the website went offline. They knew it was bad, but how bad? They wouldn’t get to find out until cofounder James Cordier posted this 10 minute video of himself having a mental breakdown. Can you even imagine what it must be like to have to find out your account’s status through an emotional snuff film starring a man who should clearly be on suicide watch?
Their whole fund wiped out in one fell swoop. Multi-millionaires waking up to not only being broke, but also owing the brokerage millions of dollars. James Cordier made the biggest YOLO with other people’s life savings then billed them for it. What a legend.