kevinkdog 

I am curious what the thread experts @ron99 and @myrrdin think about having $2.5K equity per 1 short Call option? @SMCJB - you are a professional energy trader, I'd like to hear your thoughts too.

That's an extremely broad statement and as such difficult to answer. While most here think of options as price driven your typical large options trader or market maker doesn't. They think of it as a volatility trade. So the buyer of those options probably made a fraction of what optionsellers.com lost, since they would have been delta hedging it all the way up, and all the way down. They probably also were short different strikes/months against it.

Something else to consider is that I think you are all talking about the Natural Gas ON Options, ie American Options which result in delivery of an NG futures contract. If you look there are also Natural Gas LN Options, which are European Financial Settle Options, and the open interest in them is about 10 times that of the ON Options. The big OTC trades, I believe are mostly ON not LN.

Looking at winter natural gas call options, I have to ask, why would a non-professional want to sell these? Do they have a better understanding of storage logistics (storage at multi year lows) than professionals? Do they have a better crystal ball for predicting weather (remembering all the big energy desks have their own on staff meteorologists). Or do they just see a really really fat premium and think "it's never going there" and if it does they are so far out of the money I can manage them. Those premiums are fat for a reason.

On a related but different subject, EIA reported Natural Gas Stocks were down 134 BCF last week, which is one of the largest withdrawals ever in November. So not only do we have a very low stock level going into winter, but we have started pulling out a last faster than normal as well.

Here is the link for their summary/final report on what happened. Not sure how long it will be available:

https://hh206.infusionsoft.com/app/linkClick/41539/6fe4b26cb176abd0/7972779/adcdd2b296712a9c

thanks

Vijay

Conclusion
The positioning model, the risk management strategy, and the liquidation process were all conducted within stated company and program risk guidelines. What happened appears to have been a black swan event that simply overwhelmed system safeguards.

In other words lawyers please go away! Nothing to see here. Just your normal Black Swan Event!

vmaiya73 

Here is the link for their summary/final report on what happened. Not sure how long it will be available: https://hh206.infusionsoft.com/app/linkClick/41539/6fe4b26cb176abd0/7972779/adcdd2b296712a9c thanks Vijay

45% of account balance to cover margin is FAR TOO HIGH. Never make the mistake that they did.

vmaiya73 

Here is the link for their summary/final report on what happened. Not sure how long it will be available: https://hh206.infusionsoft.com/app/linkClick/41539/6fe4b26cb176abd0/7972779/adcdd2b296712a9c thanks Vijay

by the book selling strangle strategy but bad luck happen time to time, given more money he will do the same thing again. You can't walk around and wonder when will it show up.

Strategy

''Despite low storage levels, EIA expects strong growth in US natural gas production to put downward pressure on prices in 2019, EIA expects Henry Hub natural gas spot prices to average $2.98/million MMBTU in 2019, down 4 cents from the 2018 average .."

Government agency said it! so it must be true, lets sell strangles round that price boys and all will be well. Unreal.

As a final report this is pathetic, extremely lame and amateurish.

The report does tie back into the spreadsheet of positions well, the report makes it sound like they were quite active closing and rolling positions on 12 and 13th and that what was left over till 14th was reduced and manageable risk, there should be more specific details on this but there isn't, maybe because if they were they wouldn't make very good reading.

The spreadsheet still shows the lions share of Feb and Mar options still open going into 14th, if one takes the initial position of 254 short Feb and Mar calls open on the 9th, I count 188 calls on this account still open going into the 14th. Given, that most of them are a result of rolling further out of the money it is still a very substantial and aggressive position given the loses already realized and what was happening in the market last week.

Not going to end well for these guys. Hope their clients are going to get a strong case out of this.

vmaiya73 

Here is the link for their summary/final report on what happened. Not sure how long it will be available: https://hh206.infusionsoft.com/app/linkClick/41539/6fe4b26cb176abd0/7972779/adcdd2b296712a9c thanks Vijay

Attaching it here for safekeeping.














Mike

From a twitter post. Possible range of NG prices given implied volatility of options. This is 20th of November data, so after the implosion of optionsellers.com (would be good to see same chart before prices moved) but this is saying that a move to $10 in NGH9 would only be a 2 standard deviation move given the implied volatility.

Futures options started trading in 1982 and within a few years the first blowout happened from someone selling gold options and also taking out their clearing house. Since then these episodes have happened again and again as the ability of people to learn from the past is coupled with greed and the hubris of the self sure. The next time you complain about the margin requirements of your broker remember they are protecting you from not only yourself but all their other customers as well.