Posted on 11/23/2018 8:27:53 AM PST by TigerClaws
Volatile commodity markets often lead to colossal failures, as the founder of a Tampa, Florida-based options firm acknowledged in a bizarre, 10-minute YouTube confession in recent days. In the video, a money manager named James Cordier tells his 290 clients that he couldn't navigate a "rogue wave" that hit as oil and natural gas markets gyrated severely. His voice shaky and halting at times, Cordier delivered the rambling message while sitting at an uncluttered desk, wearing Wall Street's standard-issue suit, cuff links and wristwatch.
"You are my family and I'm sorry that this rogue wave capsized our boat," he says in the video, making a string of nautical references. "I am so sorry for not managing our ship and keeping her afloat."
But an Ohio lawyer who has talked to several customers of Cordier's firm, OptionSellers.com, said the trader had piled into a risky position in natural gas derivatives and that he did so without hedging to prevent steep losses. The position was complicated but, in essence, a sharp increase in natural gas prices would mean investment losses for Cordier. And that's what happened. Natural gas spiked 18 percent on Nov. 14.
Gas prices never go up in the fall when it starts to get cold. This was a guarantee! Free Money!
More than just “oops”...apparently he took a similar position—with similar disastrous results—working for a firm several years prior.
How’s that old saying from the card table go...”if it’s not immediately clear who the mark is, the mark is YOU”.
Gambling with other people’s money.
I think most big hedge funds don’t do better than index funds either in the long run.
He should have started a blog with pants-on-fire headlines complete with capital letters and exclamation points and spammed FR with it. Might have even found someone to pimp it for him here and make excuses for him.
He who sells what isn’t his’n, buys it back or goes to pris’n.
My understanding is that he not only vaporized his fund, but he ended up owing significant money; because he sold naked calls. In effect he said to the market (by selling naked calls) “I will provide nat gas at price Y in exchange for you (Mr. Market) depositing $Z into my account today.”
If you’ll recall, this is how most utilities in the Enron fiasco went BK. They had agreed to provide electric power, via their operating agreements with their state Utilities Commissions. (or whatever the appropriate term is for your state) When Enron got involved, they drove up the price of elec energy so high that the utilities went bust, having to provide same well under their costs. And of course, the utilities were induced to sell off their own generating plants, through what voodoo one can only speculate about. It was truly a “hold my beer, it made sense at the time” situation.
It is kind of like an insurance company, collecting a premium today and betting that a certain outcome does not happen....in which case, the ins co gets to keep your premium for doing nothing. Of course, we generally think of insurance co insuring against (what to you would be a) a disaster. The “disater”, in this case, was the hedge fund shorting natty gas. In winter. Dumb, very dumb.
A disaster can be your house burning down. Then there can be $10K-$30K hauling the burnt carcass away. The point is; these costs can be pretty well known. If your house was built in 1960, then the ins co knows there will be massive code upgrades to reproduced the identical house.
But when the “disaster” is on the UPside, the risk (to the options seller, to the insurer) is potentially unlimited. There were a few days in 2014, I believe, when we had a crazy cold snap and natty gas rose a buck or the better part of a buck 2-3 days in a row.
They do not call natty gas “the widowmaker” for nothing. It is generally a kind of sleepy market, moving 3-4-5 cents a day then one day you get a 15 cent move.
On the day this guy’s hedge fund blew up I believe nat gas moved 73 cents. How many standard deviations is that?
Nat gas can utterly rip your head off. In this case, that’s exactly what it did.
Speculators usually make money—lots of money—through ordinary peoples’ misery.
Good to see the rolls reversed.
Exactly, the guy went full retard, never go full retard.
Annnnnd.....its gone. (Southpark)
guess the guy never heard of google...
FIFY
His video is over the line. He rambles, no focus, and we will answer your calls until we disconnect all lines.
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