James Cordier net worth used to be massive, until he got greedy and sold too many call options on natural gas.
David Jaffee of BestStockStrategy.com received a lot of questions and comments about OptionSellers.com.
The hedge fund lost around $150 million of their clients’ money, and David Jaffee breaks down where Option Sellers went wrong, you can also read his previous article about James Cordier and OptionSellers here
Option Sellers was a hedge fund that had around $150 million in assets under management, which is actually quite small for a hedge fund.
It was run by James Cordier, once referred to as the “options king” or the “king of options.”
Perhaps he referred to himself as this.
Option Sellers sold option premium, which is a fantastic strategy. However, they went bust for a few main reasons.
OptionSellers Greed & Trading Too Large
The first and second reasons that Option Sellers went bust is that they got greedy and they traded to large.
When you sell option premium, there’s a way to design trades that are profitable 90% -95% of the time.
While you are profitable 95% of the time, you have to manage your trading size, and also hedge your position to ensure that the ~5% of trades that you lose won't hurt your overall returns.
If your trading size is too large, you can end up losing a substantial amount of money.
This unlikely scenario is exactly what happened to OptionSellers.com, and you shouldn’t let it happen to you.
Some traders lost money in March 2020.
Prior to March 2020, these traders were winning almost every single trade, but it was not enough for them to earn ~3% each month trading options.
Instead, they tried to earn 15% per month. They sold strike prices that were too close to the current market and sold too many contracts.
When March 2020 rolled around, these positions went against them.
Instead of being able to roll and manage the position and wait for a volatility contraction like the rest of David Jaffee’s followers, they were forced to close the positions for a loss.
The same is true for OptionSellers.com.
They got greedy because they were used to winning almost every trade. They were trading too big and choosing strike prices that were too close to the current market price.
In fact, their size was probably about 10 times larger than it should have been.
Option Sellers was trading commodities, which also contributed to their downfall.
Commodities have a history of going hyperbolic, whether it be to the upside or the downside.
It is not uncommon for a commodity to go up, or down, ten days in a row.
For Option Sellers, James Cordier's natural gas position is an example of this, as the commodity went up 60% in one week, which is astronomical.
When you trade commodities, they are inherently more risky than equities. Option Sellers did not properly manage its risk when trading options on natural gas.
Equities have more two-sided action. The price of a stock is supported by earnings, dividends, hedge funds, private offices, private wealth management, pension funds, etc.
While commodities have liquid markets, they are still relatively small when compared to most liquid stocks.
What happened with natural gas happens frequently with commodities - the same thing happened in January of 2016 when oil fell, in August of 2018 when gold fell and also in 2020 when futures prices of oil delivery went negative.
That is definitely one of the reasons why OptionSellers.com went bust - they traded commodities, which have a history of being extremely volatile (and they didn't hedge their position).
OptionSellers and James Cordier were Unlucky
The final reason that Option Sellers blew up is that it simply got unlucky with James Cordier options selling strategy.
When you trade commodities, there is a higher possibility that you will get unlucky.
When trading options and selling premium, you'll likely lose around ~5% of your trades - and it's important to ensure that those 5% of trades do not hurt you too much.
You can do this by not trading too large and also by hedging your positions.
When Option Sellers traded commodities, they should have traded about 1/10 of the size they were trading at that time.
Key Takeaways from OptionSellers.com
Simply put, it was a perfect storm of all these factors that led Option Sellers to fail.
There is no better trading strategy than selling option option premium if retail traders want to be consistently profitable.
A study found that virtually every single retail day trader loses money.
If you are looking to achieve alpha and outsize gains in the stock market, you have no choice but to sell option premium.
You have to act like the casino and act like the insurance company.
Sell option premium, but take a lesson from OptionSellers.com:
Don’t get greedy, watch your size, avoid commodities, and remember that luck plays a part in it.
Want to know the best strategy for selling option premium?
David Jaffee’s online options trading course provides a comprehensive guide to winning every trade.
Frequently Asked Questions (FAQs)
How much money did James Cordier lose?
The hedge fund lost around $150 million of their clients' money, and David Jaffee breaks down where Option Sellers went wrong in this article
How did James Cordier lose money?
In mid-November 2018, Cordier bet that natural gas prices would go down while crude oil prices went up. The reverse happened, and just like that, his clients lost at least $150 million. "Needless to say, the events of this past week have been incredibly devastating,'' Cordier said in a flat-voice apology on YouTube.
Where is hedge fund manager James Cordier now?
James Cordier seems to have disappeared from the public eye after his hedge fund blew up. Even so, despite losing $150 million of client money, I believe that he's still wealthy (after hiding assets) and he's likely living a good life.
Do option sellers really make money?
Yes, they can, as long as option sellers hedge their positions and do not trade too large, then they can be consistently profitable.
Any other articles on James Cordier and OptionSellers.com?
James Cordier failed to respect risk when selling options (and he also didn't hedge his position). A good article about James Cordier is here.