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.

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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”

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Shorting an inverse ETF? A bad idea! (Or: Why “Beta-Slippage” isn’t alpha)

A while back, I came across an interesting blog post. A guest writer on the White Coat Investor blog put forward an intriguing, almost too good to be true, money-making scheme. Unfortunately, it is too good to be true. It works neither in practice nor in theory. The more I looked into this subject, the more flaws I found with the analysis and I thought people might find it useful when I share my notes here.

It would have been so nice to announce here – with great fanfare – that, yes, there is a way to consistently beat the stock market. But it wasn’t meant to be. Oh, well, sometimes it’s just as insightful to understand why things don’t work! Continue reading “Shorting an inverse ETF? A bad idea! (Or: Why “Beta-Slippage” isn’t alpha)”

Five Fishy Finance Phrases Deserving Diabolical Deaths

Halloween is around the corner, as evidenced by the annual return of the “Pumpkin Spice Latte” at Starbucks and 5-pound bags of sweet stuff at the grocery store! That’s also a good time to stab through the heart and kill with a silver bullet all those scary senseless finance myths, truisms, and falsehoods. Every time I hear one of the phrases below I suffer a mini heart attack. I hope people would stop saying those. Continue reading “Five Fishy Finance Phrases Deserving Diabolical Deaths”

Gold vs. Paper Money: a rant

Have you ever seen these TV commercials:

“Governments are trillions of dollars in debt and are printing paper money at record pace. So, don’t invest your retirement in paper money. Transfer your IRA to a Gold IRA at XYZ Capital. Call now for your free IRA transfer kit.”

I have to cringe every time I see or hear that. What deceptive marketing! Our financial assets (equity ETFs and Mutual Funds mostly) are not invested in paper money, they are merely denominated in paper money. In fact, if people are so troubled by measuring their equity portfolio in USD paper money, they are free to measure it any way they want: ounces of gold, metric tons of copper, bushels of wheat, gummy bears, the choices are endless. And by the way, don’t forget that gold is denominated in paper money USD as well! Continue reading “Gold vs. Paper Money: a rant”

Never, ever invest in this

When we meet new people and Papa ERN explains what he does and where he works (asset management for a large financial institution), people often want to chat about investing and show off their own investing prowess, here some actual quotes:

I made lots of money with a short silver ETF

I put a lot of money in oil ETFs

I use a VIX ETF to protect against the downside

Papa ERN has heard it all and would usually respond that at work he’s discouraged from actively trading in personal accounts and thus resorts to investing in index funds exclusively. Papa ERN is trying to enjoy a happy hour or cocktail party, and so he doesn’t want to get into arguments or talk people out of bad investment decisions. Most of the recent so-called financial innovations only make the issuers rich, not the retail investor. Of course, occasionally one could win and win big, just like in the casino, but over time the house wins.

Financial innovations play with the same emotions as all the other gimmicks, whether it’s cars that exude the feeling of a race car, downhill skis that make you go down the slopes like a gold medalist or designer clothes that make you look like a Hollywood celebrity. By trading this ETF or switching to that platform, or studying this chart pattern, ostensibly, you too can become a trader. Or at least feel like one. Intriguingly, the same people who now laugh about their parents and grandparents falling for the Marlboro Man many decades ago, now get suckered into an equally damaging scheme targeting their financial health. Here are some of the worst ideas: Continue reading “Never, ever invest in this”