It looks like some folks ended up being collateral damage this week when a forced unwind in a long WTI/short nat gas bet threw – sorry – gas on a raging fire both with regard to the selloff in crude and the surge in natural gas.
That apparent liquidation moment conspired with hedging dynamics (from dealers who sold puts to producers) to exacerbate the price action in crude and before you knew it, things spun out of control.
Read the whole story
As alluded to above, it looks like there were some civilian casualties (figuratively speaking of course).
“It’s pretty unbelievable”, WSJ’s Gunjan Banerji marvels, in reference to the following two snippets from an http://optionsellers.com Q&A for clients who apparently just lost all of their money and then some.
“It’s short vol. gone really, really wrong again”, Banerji mused, in the same series of tweets, which also finds her spelling out in simple terms what those screengrabs say, which is that “optionsellers.com appears to have lost all client money on short options strategies on energy markets.”
Optionsellers.com can’t be reached anymore, but here’s an archived version of the pitch – we’ve underlined the two most important sentences.
Yes, “the tough part is finding somebody that knows how to do it – right.”
You can write your own jokes. Obviously, there are many.
I’m not going to try and sort out exactly what happened here because it’s spelled out in the first underlined sentence of that sales pitch.
“Nat gas short options blowup”, Pravit Chintawongvanich tweeted on Saturday evening, before recalling how he had “a chuckle at the tagline on their site a while back – ‘77% of options expire worthless’ – not so useful if you go insolvent before expiry!”
Correct. And although Pravit goes on to remind everyone that “there’s nothing inherently bad about selling vol if you risk manage and size appropriately”, he also asks the obvious question, which is this:
I will say though – what on earth were these people doing selling naked calls on the most volatile futures contract on the planet for mom and pop?!
The bottom line is that “these people” apparently got their clients on the wrong side of things headed into this week’s rather dramatic action that saw crude plunge and nat gas explode to the upside. You can read the full story on what happened in the linked posts above, but a simple visualization of the blowout in the nat gas/crude ratio (right-hand side of the chart) gives you an idea of how this went wrong.
In case you’re wondering how James Cordier – founder, president and head trader of OptionSellers.com – is feeling about things, here is his bizarre 10-minute message to “clients”….