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Dear Research Dept
I wonder if your super whiz friend was short premium during the 1987
crash? I was at the CBOE during the 80s. I knew a trader by the name of Wa
Lin. He was a mathematical genius. He would walk around the trading floor
and could figure the exact value of every option without a computer. He had
some success in the early 80s and then went broke in 1982, He got some money
together and returned to the CBOE a few years later. He started out small
but within about two years he was one of the most successful market makers
on the floor. By mid 1987 rumor was he was trading a $10 million dollar
account, averaging 5-%10 return per month, and had a $30 million net worth.
One of Wa Lin's secrets to his success, in addition to being incredibly
smart, was that he would almost always be short premium. He was also a good
trader and during this period would adjust when he was wrong.
Then the 1987 crash came along. Wa Lin was short massive amounts of
premium and not only was the market crashing but the premiums were exploding
so fast there was no time to adjust. This put Super trader Wa Lin's account
about $50 million dollars debit. This caused a huge capital problem for his
clearing firm First Options of Chicago (FOC) which was the largest CBOE
clearing firm for market makers. Although market makers are independent of
the clearing firms, the clearing firms are responsible for any debits that
their client market maker creates.The clearing firm guarantees payment of
all funds, so must come up with the money. If the clearing firm fails, then
the other clearing firms must make up any deficit.
With the 1987 crash, FOC had other market makers go debit, but none nearly
so large as Wa Lin, who had been their star market maker. After the dealing
was done and the damaged counted, FOC was had a $90 Million deficit. Due to
then being owned by the Continental Bank of Chicago which was in
receivership and controlled by the US Govt. there were some major capital
and regulatory problems caused by this huge capital shortfall. To keep this
somewhat brief, Wa Lin's contribution to the US financial system was that he
very nearly caused FOC, the CBOE's largest clearing firm which cleared about
2/3's of the CBOE market makers, to go under. If FOC had gone under, then
there is a good chance the CBOE would had failed. If the CBOE had failed,
there is a good chance there would have been a total meltdown of the US
financial system. As it turned out,
the Feds, the exchange officials, and all concerned burned the midnight oil
to figure a way to bend the rules so that enough capital could be extended
to save FOC and the CBOE from failing.
Wed. October 16, the markets opened and the system barely survived. Wa
Lin was nowhere in sight and was never seen on the trading floor again. .
The Wall Street Journal and rumor had it that he had gone back to his
ancestral home in the orient. Maybe he is selling premium in Hong Kong right
now?
Cheers,
Norman
----- Original Message -----
From: "Research Dept." <research@xxxxxxxxxxxxx>
To: "Soeren Schneider" <realtraders@xxxxxxxxxxxxxxx>
Sent: Friday, May 04, 2001 8:07 AM
Subject: Re[2]: [RT] EL Wave / Voodoo
> Hello Soeren,
>
> when a man has
>
> a 13 million dollar house in highland park, texas
> a 17 million dollar house in beaver creek, colorado
> a 16 million dollar 12 passenger challenger jet with 6' 2" of head room
> a 15 year track record with never a loosing year
> a broker deal with one of the worlds largest banks
> a privately owned bank
> a restaurant chain, several
> a bout the largest hedge fund in texas
> a professional soccer team
> a million dollar market research budget per year
> a corvette collection of about 20 cars
>
> and he tells me to sell options, not to buy them - i unlike you know
> what the reasoning is.. maybe now you understand what the
> reasoning is?
>
>
> >> He told me there were only three rules to working for him.
> >>
> >> 1. You can never buy any options, we only sell em.
>
> SS> What's the reasoning for being always gamma short?
>
> SS> Rgds,
> SS> Soeren
>
>
>
>
>
> --
> Best regards,
> Research mailto:research@xxxxxxxxxxxxx
>
>
>
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