James Cordier OptionSellers Blow Up | Who is James Cordier?
The James Cordier OptionSellers blow up cost investors $150 million.
Even worse, the investors received a bill from James Cordier since he got margin called and lost more than what the fund was worth.
He then recorded a famous apology video where he apologized to his investors for ten minutes in a cringe-worthy manner.
James Cordier’s net worth was significant until he blew up his entire OptionSellers hedge fund.
Why Did James Cordier’s OptionSellers Fund Blow Up?
James Cordier’s OptionSellers fund blew up because he failed to respect risk as an options trader.
The trades that cost him the OptionSellers fund were a short call position on natural gas futures and a short put position on crude oil futures.
Both trades occurred in 2018, and the natural gas and crude oil futures chart explain the whole story.
Natural Gas Futures Chart
The chart above shows what natural gas futures did after James Cordier overleveraged in a short call position.
Short calls are a bearish trade, and natural gas futures increased rapidly, causing the OptionSellers fund to realize massive losses.
Crude Oil Futures Chart
The chart above shows what crude oil futures did after James Cordier sold put options.
Short puts are a bullish trade; after James Cordier sold them, crude oil futures plummeted, causing significant losses.
OptionSellers Sold Too Many Contracts
Knowing when significant moves will occur is impossible, but understanding risk is key to surviving as an option seller.
If James Cordier didn’t overleverage into these positions, he would not have received a margin call and been forced to close his positions for a loss.
However, since he sold so many contracts, the fund balance went negative, and he had no choice but to close his positions at significant losses.
Lessons Learned From James Cordier OptionSellers Blow Up
Understand the risks of selling options
Selling options is an excellent strategy, but you must understand that you are taking significant risks, especially when selling naked calls.
Since stocks can increase infinitely, naked calls come with unlimited risk potential. However, this is not an issue for covered call traders.
Do not overleverage your account
Selling options requires minimal capital requirements and will allow you to sell more contracts than your account can handle.
You must understand what notional value means and avoid selling too many contracts.
Never believe a trade is ‘free money’
James Cordier believed that selling calls on natural gas was essentially ‘free money.’ However, he quickly realized that this was not the case.
Selling OTM options may look like nearly risk-free money, but this is never the case.
James Cordier Apology Video
James Cordier of OptionSellers made a viral apology video to his investors after his hedge fund suffered major losses due to risky and unnecessary decisions, causing a significant decline in James Cordier's net worth.
Many people do not feel sympathy for Cordier as the losses could have been avoided if he had not taken such high risks.
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