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I will confirm that disaster I know of several others as I am sure Norman does
also. Naked premium selling is a disaster waiting to happen.
Norman Winski wrote:
> 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
> >
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxxxxxxxxxxxxx
> >
> >
> >
> > Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
> >
> >
>
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>
>
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