Storytime: Millionaire for a Day

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by yousuckatoptions

Had a story I figured you all would enjoy about a client I worked with that that turned ~150k into a ~$1M over the course of 4 months and then proceeded to lose it all in 2 days.

We’ll call this guy Mr. R. And like most of us he had terrible trading habits – hopelessly trying to play earnings calls, trading options that expired in less than 48 hours, etc. Well one day Mr. R calls in and starts working with one of my colleagues who introduces him to an iron condor. For those of you who’ve never traded more than one leg at a time, just understand it’s a low volatility play. Anyways, Mr. R starts writing these condors on $SPX and notices that he can sell these every other day as $SPX has contracts that expire on Mon, Wed, Fri. It’s also important to note he’s never closed out a condor before, only knows how to open them and let them expire. Anyways this guy starts leveraging his account every day and rolling the new money he’s making into each trade to the point that he’s trading nearly 300 contracts on every leg (rip on commissions). He then gets portfolio margin which threw jet fuel on this dumpster fire of a strategy and allows Mr. R to acquire that coveted second comma. At this point we’re trying to talk some sense into him to stop this Vegas style gambling as he’s made life changing money and is already nearing retirement age. But no he keeps pushing his luck and when the volatility hit back in June his whole account came crumbling down and over the course of 2 days he lost close to $800k. Needless to say our risk management team had a field day with this guy and ripped portfolio margin and options trading away from him as quickly as possible.

Apparently he moved the rest of his money out of our firm and into some bank where it’s sitting in CDs.

Edit 1: Wanted to clarify my comment about closing the condor. When shit was going south he had to talk with our credit and risk team and they discovered that he didn’t know how to exit the position meaning that this guy had been selling this strategy at least 3 times a week for 4 months straight and hadn’t lost once.

Edit 2: Moral of the story – greed knows no end, dude made $1M and it still wasn’t enough. Or some bullshit like that

Edit 3: Clarifying the introduction to condors, client was seeking education on how to capitalize on low vol. It wasn’t a blind recommendation and we explained the mechanics and all the risks associated with the strategy and when it was appropriate to use them. He’d already been trading single legs for a couple of years at this point – it’s already a long post, sorry for saving a few lines instead of being super detailed.

Final Edit: To everyone saying our risk team dropped the ball, please understand the risk team is in place to protect the firm not necessarily the clients. It’s not our place to hold clients’ hands through every trade, especially when they are self-directed. They did their jobs as it was intended.

 

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