Tag: Options

The OptionSellers.com debacle: How to blow up your portfolio in five easy steps

Right around the time when I wrote my options selling update a few weeks ago was when everyone in the option seller circles talked about the blowup of OptionSellers.com. Option Sellers, LLC was a Tampa, Florida based Registered Investment Adviser and CTA (Commodity Trading Adviser). They managed money for 290 clients. Considering the minimum investment was $250,000 and most investors likely had more money with them, I’d surmise that they were managing around $150m. On November 15, 2018, they informed their investors that not only was all their money lost but that clients would likely owe more money. Wow, let that sink in: they had a loss of more than 100% and clients are left with debts they have to cover now! Bad news for the clients who invested all their money with OptionSellers!

A failure of a small obscure adviser probably would have stayed under the radar but the co-founder published a tearful apology video, confessing that all customer accounts were wiped out “by a rogue wave.” The movie was since taken down – probably the lawyers didn’t like the idea of this kind of mea culpa so much – but it’s still available on YouTube. The story went viral (or at least as viral as something as obscure as options trading can go) and was then picked up even by the national news media, including the Wall Street Journal, CNBC and many others.

CordierVideoScreenshot2
Should have prayed before blowing up $150m! James Cordier in his apology video, via Youtube.

Quite intriguingly, their strategy imploded over the span of just a few trading days. And just to be sure, this wasn’t fraud a la Bernie Madoff but investors actually lost their money “fair and square” if there is such a thing. Is this something all option sellers should worry about? Yes, if you are as reckless as Option Sellers. If you had bothered to check what these clowns were doing it was clear that this debacle was all but unavoidable. Let’s take a look at what they did and the five obvious mistakes that lead to the meltdown…

Continue reading “The OptionSellers.com debacle: How to blow up your portfolio in five easy steps” →

Trading like an Escape Artist: How I made money in October trading S&P Futures Options with 2x leverage

October was a scary month for stocks: the worst monthly S&P 500 return in seven years! And November is off to a volatile start as well! We haven’t even seen a real correction yet but apparently, the drop was bad enough for me to got inquiries from friends and former colleagues asking how I’m doing with our portfolio and if (and when?) I’m going to come back to the office again! Sorry, not anytime soon! As I detailed in the post two weeks ago, we are not too concerned about one month of bad returns early in retirement.

Some friends and readers of this blog were specifically concerned that my options trading strategy might have been hit badly by the wild swings. After all, I’m doing this with a little bit more than 2x leverage and with the market down about 7% does that mean we lost more than 14%? Of course not! To all the rubbernecks out there who suspect we had a bad car wreck in our portfolio last month, I’m happy to report that we actually made a small profit with this strategy in October! And continued to do so in November! How awesome is that!? Well, there were a few close calls but I was able to escape any major damage. It took some Houdini Skills (or luck???), hence the title image of escape artist Harry Houdini (Picture Credit: Lomography).

Let’s take a look at the details…

Continue reading “Trading like an Escape Artist: How I made money in October trading S&P Futures Options with 2x leverage” →

So what, we retired at the peak of the bull market? Here are seven reasons why we’re not yet worried…

Wow, did you see the big stock market move in October? The worst monthly S&P 500 performance since 2011! When you’re still working and contributing to your retirement savings it’s easy to lean back and relax: you can buy equities at discount prices and you buy more shares for the same amount of savings when prices are down, a.k.a. dollar-cost-averaging. Now that we’re retired things are different. Sequence Risk creates the opposite effect of dollar-cost-averaging: you deplete your money faster while the portfolio is down. I have been writing about this theme for almost two years now and now it looks like I might become my very own poster child of Sequence Risk.

The 2018 calendar year gains were almost wiped out in October. Ouch!

So, are we worried having retired at (or close to) the peak of the market? Well, take a look at the title image: an ERN family selfie while vacationing in Angkor Wat (Siem Reap, Cambodia) in October. It doesn’t look like we’re too concerned about the stock market! And here are a few reasons why…

Continue reading “So what, we retired at the peak of the bull market? Here are seven reasons why we’re not yet worried…” →

Our Net Worth as of 3/31/2018

I wish the first quarter had ended on January 26 when the S&P500 peak reached the all-time high of 2,872! But in the end, the first quarter of 2018 was really nothing to write home about. And the second quarter is off to a volatile start as well! But I started with this series exactly a year ago and I might as well keep going! Besides, looking at the visitor stats, these posts are some of the most popular! I don’t blame you for being nosy because net worth updates are some of my favorites to read on other blogs, too! 🙂 Soooo, where do we stand as of 3/31/2018? Let’s take a look at the cold hard numbers…

Continue reading “Our Net Worth as of 3/31/2018” →

My podcast appearance on Millionaires Unveiled

Late last year, I chatted with Jace Mattinson and Clark Sheffield at Millionaires Unveiled. It’s a fairly new podcast but they’ve already lined up an impressive list of guests including Dr. Dahle, aka White Coat Investor and Mindy and Carl from 1500 Days. I also particularly appreciate the diversity of different investment styles. Not everybody becomes a millionaire by investing in VTSAX! We can also learn from real estate investors and business owners! But first, of course, please listen to Episode 15 with yours truly, which was released today…

—> Click here for the podcast on iTunes <—

—> Click here for the podcast on Stitcher <—

And please also subscribe, review and “like” them on iTunes and Stitcher!  Continue reading “My podcast appearance on Millionaires Unveiled” →

Our Net Worth as of 12/31/2017

Happy New Year! Another quarter-end, I can’t believe how fast time flies! And we all know what that means, right? Net Worth updates across the Financial Independence blogosphere! For us, this is a special NW update because it’s the last one before we both give notice at work in two months! And the last NW update before our apartment goes on the market! In other words, this better looks good, otherwise, we might get cold feet, also known as One More Year Syndrome. Soooo, where do we stand financially? Here are the numbers…

Continue reading “Our Net Worth as of 12/31/2017” →

Our Net Worth as of 9/30/2017

Time flies! It’s been six months already since our inaugural Net Worth report. For some reason, we never did a Q2 update! Actually, there is a reason. Watching the ERN family portfolio progress is a little bit like watching paint dry. It’s slooowwww, at least in percentage terms! Every year in the first quarter, we get a nice noticeable bump when the annual bonus rolls in, but outside of bonus season, we feel a bit like living paycheck to paycheck! OK, that’s an exaggeration because we still max out our 401k contributions and pay down the mortgage principal (which we consider savings). But about half of our savings come from one single paycheck and the other half is spread over the remaining 23 paychecks. That’s the privilege of working in the finance industry! So in Q2 and Q3, we might have added a little bit of savings, but the growth in our net worth came mostly from the pretty solid returns in our different investments.

Let’s look at the numbers in detail… Continue reading “Our Net Worth as of 9/30/2017” →

We are so skewed!

Note that I didn’t say “screwed” but skewed. Well, it wouldn’t have made a difference because today’s post is about how we get screwed by skewness. 

But I’m getting ahead of myself. The other day I asked myself why would anyone buy lottery tickets? The return profile is atrocious! The average payout is probably only about 50% of the money raised. In a hypothetical lottery with a one in a million chance for a $500,000 prize and a ticket price of $1.00, your expected return is -50% in one week, which means essentially -100% compounded over a year. The standard deviation is $500, so 50,000% relative to the $1 investment. And that’s on a weekly basis, which translates into over 360,000% annualized. What’s worse, that jackpot payout is usually stretched over many years or decades with a much lower lump-sum payment. And it’s subject to income taxes, so the after-tax return is even bleaker! If Vanguard or Fidelity or Schwab offered a mutual fund with return stats like that everybody involved would be facing federal indictments!

Then why not invest the lottery ticket money in stocks? No one can tell me that they’re afraid of equity risk (about 10-15% annualized) when they buy lottery tickets with 360,000% annualized risk. Nowadays you can buy stocks or equity mutual funds in very small amounts. Our 529 account has a $25 minimum investment and you can buy single stocks on Robinhood. Then what’s the appeal of a lottery? In one word: Skewness, see the Wikipedia definition. In particular, positive skewness!

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Positive Skewness: higher probability of large positive outcomes (e.g. lottery). Negative skewness: higher probability of large negative outcomes (e.g. stock market). Source: Wikipedia

Positive Skewness means that the likelihood of large positive outliers is much higher than that of large negative outliers. Case in point, a lottery ticket: Your worst return is -$1, or whatever the price of the lottery ticket may be.  The largest positive outlier might be in the hundreds of millions.  Continue reading “We are so skewed!” →

The ERN Family Early Retirement Capital Preservation Plan

Fritz at The Retirement Manifesto suggested we start a series covering how different FIRE bloggers plan to implement their drawdown strategy. I realize we are a bit late to the party given how many fellow bloggers have already contributed:

The Anchor: Physician on FIRE: Our Drawdown Plan in Early Retirement

Link 1: The Retirement Manifesto: Our Retirement Investment Drawdown Strategy

Link 2: OthalaFehu: Retirement Master Plan

Link 3: Plan Invest Escape (PIE): Planning for Success: Drawdown versus Wealth Preservation in Early Retirement

Link 4: Freedom is Groovy: Freedom is Groovy

Link 5: The Green Swan: The Green Swan

Link 6: My Curiosity Lab: Show Me The Money: My Retirement Drawdown Plan

Link 7: Cracking Retirement: Our Drawdown Strategy

Link 8: The Financial Journeyman: Early Retirement Portfolio & Plan

Link 9: Retire By 40: Our Unusual Retirement Withdrawal Strategy

Link 10: Early Retirement Now:  The ERN Family Early Retirement Capital Preservation Plan (This will land you back in this post. Make sure you don’t end up in an infinite loop! 🙂 )

Link 11: 39 Months: Mr. 39 Months Drawdown Plan

Link 12:  7 Circles:  Drawdown Strategy – Joining The Chain Gang

Link 13:  Retirement Starts Today:  What’s Your Retirement Withdrawal Strategy?

Link 14: Ms. Liz Money Matters: How I’ll fund my retirement

Link 15a: Dads Dollars Debts:  DDD Drawdown Part 1: Living With A Pension

Link 15b: Dads Dollars Debts:  DDD Drawdown Plan Part 2: Retire at 48?

Link 16: Penny & Rich: Rich’s Retirement Plan

Link 17:  Atypical Life:  Our Retirement Drawdown Strategy

Link 18:  New Retirement: 5 Steps For Defining Your Retirement Drawdown Strategy

Link 19:  Maximize Your Money: Practical Retirement Withdrawal Strategies Are Important

Link 20:  ChooseFI:  The Retirement Manifesto – Drawdown Strategy Podcast

Link 21:  Coach Carson:  My Rental Retirement Strategy (or How to Not Run Out of Money)

So, better late than never: here’s the ERN family contribution. To begin, we are intentionally not calling this a drawdown plan. We will draw from our investments but hopefully never significantly draw them down. So, we are more in the PIE camp, trying to maintain our capital. Even if we were comfortable with leaving nothing to our heirs and charitable causes in 60 years, the drawdown over 60 years would be so small (especially early on, think of this as the initial amortization in a 60-year mortgage!) that we might as well plan for capital preservation rather than drawdown.

Continue reading “The ERN Family Early Retirement Capital Preservation Plan” →

Our Net Worth (as of 3/31/2017)

We were surprised by how many personal finance bloggers publish their net worth numbers. J. Money over at RockstarFinance maintains the world’s first and only (to our knowledge) blogger directory and out of almost 1,000 bloggers, over 250 publish their net worth. So, should we publish ours? What good is all that stealth wealth business (see the excellent posts from Physician on FIRE and The Retirement Manifesto) if I post our net worth on the blog? Well, if someone were to find out who we actually are then with or without the precise number it would be pretty obvious that we’re well off. Whether our net worth is $500,000 or $5 million, what’s the difference, then? People get mugged on the street every day for much less. So we might as well show our numbers, right?

Continue reading “Our Net Worth (as of 3/31/2017)” →