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Don't you find it incredibly IRONIC the fact they ignored their own theories
was not even mentioned in the documentary ?
To me, that makes the whole presentation a farce.
Toasted on options ?
I am doing OK. Make some, lose some.
Good point about going naked though....I never do, I always know my total
risk.
Vic Niederhofer learned the hard way too !!
For your friend to make out that well, his far strike bets that "win" must
be doing something like 100x of cost......which happens very, very rarely.
I'd count him as lucky based on my experience with option premiums.....
Guys like Vic above consistently make 100-500% returns SELLING premium.
> -----Original Message-----
> From: Lawrence Chan [mailto:stnahc@xxxxxxxxx]
> Sent: Monday, February 14, 2000 11:21 AM
> To: Omega-List
> Subject: Re: Trillion Dollar Bet - anyone impressed ?
>
>
>
> the whole story was detailed in a book.
> will find the title and post it.
>
> they basically sell some very very out strike options on some
> exotic derivatives and bonds at a dirty cheap price, but
> in HUGE SIZE all the time.
>
> so when the mkt start going against them FAST,
> which is the key problem for option sellers, they cannot do
> a thing but just watch themself sink.
>
> plus, they thought (like all option traders) the first move
> against them is normal ... like 99% of the other trades they did,
> the mkt SHOULD return to the original level ...
>
> Thus the mkt condition did not change against them, its just that
> they failed to calculate the option price properly - using chaotic
> assumption, instead of the stupid B.S. model :)
>
> With chaotic model, you do not sell very very out strikes, because
> their prices instead of going very cheap, they can go inifinite in
> many cases :)
>
> The moral is to LONG these cheap options at a rediculously cheap
> price from time to time as lottery tickets .. who knows what will
> happen :)
>
> I do know a friend who use part of his job salary to buy dirty cheap
> options on OEX (before) and sp future options (now) every month.
> He is toasted 90% of the time, but his net gain is in the millions mark :)
> like last nov, dec, and the jan this year - he made back all the bets
> he made in the past 2 years plus more.
>
> back to LTCM, as they are a fund, they are forced to perform,
> thus, lottery type of trading cannot be used as the clients will go mad
> on them ...
>
> -Lawrence Chan
>
> ----- Original Message -----
> From: M. Simms <prosys@xxxxxxxxxxxxxxxx>
> To: Omega-List <omega-list@xxxxxxxxxx>
> Sent: Monday, February 14, 2000 9:59 AM
> Subject: Trillion Dollar Bet - anyone impressed ?
>
>
> > Last week's airing on PBS of the LTCM debacle was interesting in that
> very,
> > very little details of the fund's techniques were unveiled. In fact, it
> was
> > kind of stupid when it was mentioned that LTCM dropped $500
> million in one
> > day.....yet gave no clue as to how that was actually
> accomplished. It was
> > probably a trading "record".
> >
> > Obviously these guys were leveraged with options and/or futures
> in such a
> > way that long and short "bets" were supposed to offset each
> other......based
> > on prior relationships.....
> >
> > Moral of the story: backtesting alone won't hack it in the long
> run. When
> > economic or market conditions change drastically, make sure your system
> > either adjusts properly or STOPS TRADING.
> >
> >
> >
>
>
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