Why Did OptionSellers Blow Up? What Happened with OptionSellers.com and why did James Cordier fail?
Founder James Cordier, once crowned the "King of Options," is now synonymous with a different kind of royalty: the king of massive losses.
Buckle up as we dive into the story of OptionSellers' spectacular meltdown, a cautionary tale riddled with incompetence, arrogance, and "rookie mistakes" that would make even the greenest trader cringe.
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What Went Wrong With OptionSellers.com?
OptionSellers, the hedge fund that lost a staggering $150+ million dollars of clients’ money by shorting commodities (natural gas calls).
OptionSellers sold options and blew up.
Here are the reasons why why OptionSellers, and James Cordier, failed and what lessons we can learn from their mistakes.
1) OptionSellers Failure: Greed
Imagine this: you're a winning trader, raking in profits 90% of the time. Option selling seems like a magic trick – easy money with minimal effort.
But here's the rub: that 10% that goes against you can erupt into a financial volcano, especially if you've gotten a little too aggressive.
This is exactly what happened to OptionSellers.com (and let's be honest, it's more common than they – or you – might think).
New traders often get seduced by the allure of consistent wins. They start seeing those 3% monthly returns as pedestrian, and the whispers of "easy money" become deafening.
Suddenly, 15% monthly gains seem attainable. To achieve this illusion of wealth, they push their luck, selling options at prices too close to the market or taking on outsized positions.
But when the market throws a curveball (like the crazy volatility of March 2020), their house of cards crumbles.
They're stuck. Unable to manage their positions or wait out the storm, they get hit with a margin call – a forced sell-off at the absolute worst time.
Greed, once their secret weapon, turns into their kryptonite.
This isn't just OptionSellers' story; it's a cautionary tale for every aspiring option seller.
Remember, consistent profits can breed overconfidence. Don't get greedy – manage your risk wisely, because in the options game, even a small misstep can lead to a major meltdown.
Key Points: OptionSellers.com Mistakes
1
They traded too large & got greedy
OptionSellers.com became complacent and traded too many contracts. They got greedy, and lacked discipline.
2
They got unlucky
Natural gas went up ~60% in ~2 weeks. This is an extremely large move that is rare. Had OptionSellers.com traded smaller, they actually would have made money from their position because natural gas prices collapsed quickly.
3
They traded commodities
Commodities are small markets (usually just a few billion dollars) and have the tendency to lack two-sided price action. As a result, they can go up (or down) ~10 days in a row more regularly than large capitalization stocks or indices.
2) OptionSellers Failure: Unlucky
OptionSellers.com was on a roll. Their bread and butter was selling options, a strategy known for generating steady income.
But like many a hotshot trader, they got a taste of victory and it went straight to their heads. Greed whispered sweet nothings, and OptionSellers.com upped the ante – BIG TIME.
Here's where things got spicy. They threw caution to the wind, ditching safe strike prices for ones hugging the current market value.
Not only that, but they went all-in, essentially betting the entire firm on this trade.
Rookie mistake number one: forgetting options are a double-edged sword – potential profits are matched by potential losses.
Rookie mistake number two: neglecting to hedge their bets, leaving themselves exposed like a fighter with a glass jaw.
Then came the knockout punch: Bad luck!
Natural gas prices skyrocketed a mind-blowing 60% in just TWO WEEKS.
OptionSellers.com, caught flat-footed and overexposed, were sent reeling. Their carefully constructed strategy went up in flames, leaving a trail of devastated investors in its wake.
The irony?
Had they played it safe with smaller positions, they might have weathered the storm.
Natural gas, as volatile as it was, eventually came crashing down.
But for OptionSellers.com, the damage was done.
Their story serves as a stark reminder: in the high-octane world of options trading, even a single misstep can trigger a catastrophic meltdown.
"OptionSellers.com got used to winning all their trades and they got greedy and weren't disciplined. As a result, they blew up." - David Jaffee, BestStockStrategy.com
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Why Are Commodities Risky for Trading?
3) OptionSellers Failure: Trading Commodities
Commodities are like roller coasters – they can take you on a thrilling ascent, only to plummet you back to earth in a dizzying descent.
Unlike stocks, which are often supported by fundamentals like earnings, dividends, and institutional investments, commodities are more susceptible to sudden and dramatic price swings.
Remember James Cordier? His natural gas trade was a perfect example. Prices surged a staggering 60% in just a couple of weeks, only to crash shortly after.
Unfortunately for Cordier, he was short natural gas and, by trading too large, he received a margin call during natural gas' explosive upwards move!
The commodities market is a relatively small pond, compared to the vast ocean of equities.
This means that even minor shifts in supply or demand can send prices soaring or plummeting. It's like trying to balance a beach ball on a tightrope – one wrong move, and it's chaos.
In January 2016, oil fell to about $26 per barrel and now it's trading at ~3x that (yet oil prices have traded below $0 (NEGATIVE OIL PRICE) multiple times since 2015).
We saw a similar situation in mid-August of 2018 when gold fell to around $1,100. In 2024, gold trades around $2,400.
That's why I'm generally cautious about trading them. While I might dabble in gold occasionally, I prefer to do so through options on ETFs like GLD or GDX. It's like strapping on a safety harness before taking a ride on the commodity rollercoaster.
What Can You Do to Avoid the Mistakes that OptionSellers made?
Remember that feeling of invincibility after a string of winning trades? OptionSellers.com did.
They were living the trader's dream, cruising on autopilot with their options-selling strategy. But here's the thing about options: they're a double-edged sword. You can rack up consistent gains, but one wrong move and – boom – you're toast.
OptionSellers.com forgot that golden rule (and maybe forgot their lucky socks).
They piled into a commodities market – notoriously known for its wild swings – and dialed their position size up to eleven. Think "small-town karaoke night" goes global. Big mistake number one.
Now, here's where the plot thickens. Natural gas, usually a chill customer, decided to throw a tantrum.
Prices skyrocketed in a way that would make a rollercoaster jealous. OptionSellers.com, overexposed and underprepared, got swept away in the frenzy. Talk about bad timing!
The kicker? Their original strategy, if played cautiously, could have actually made them money!
Natural gas eventually came crashing down, a cruel joke the market played on them after their unfortunate demise.
This story is a cautionary tale, folks.
Option trading can be lucrative, but you need to control your risk – especially when combined with bad luck and a reckless bet – can send your financial dreams up in smoke faster than you can say "margin call."
Option Sellers traded about 10x as many contracts as they should have traded, and they paid the price by blowing up their hedge fund.
They also failed to pro actively hedge their positions (something I teach in the option trading education course).
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Why Do Retail Traders Sell Option Premium?
The best trading strategy for retail traders is to trade options (or simply go long an index fund).
If you're interested in learning how to sell options premium then you can learn more about it here.
Day trading doesn't work. There was a study that looked at 360,000 day traders. The study analyzed every single trade they made and 359,000 were consistently losing money. The top 500 out of the original 360,000 earned just 5% alpha.
That means that, if an individual just held the SPY ETF index, they would have beaten close to 99.9% of day traders!
You need to learn how to sell option premium, and trade options, if you want to be profitable.
But... unlike OptionSellers.com, you need to be disciplined!
Conclusion: Why Did OptionSellers Hedge Fund Blow Up?
If you decide to trade options, learn from James Cordier’s mistakes. Remember to NOT get greedy and, if you choose to trade commodities, trade them very small (not 10x larger than you should be).
You also need to proactively hedge your positions!
Learn from the best traders and teacher, take our online courses to improve your knowledge and experience.
What happened to OptionSellers.com is not common, however. It’s just a perfect confluence of multiple factors that led them to bankruptcy.
That’s what happens when you get careless and greedy.
Frequently Asked Questions (FAQs) - James Cordier and OptionSellers
How much money did James Cordier lose?
The hedge fund lost around $150 million of their clients' money in a matter of days after natural gas increased in price by ~60%.
How did James Cordier lose money?
James 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.
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James Cordier Net Worth?
I would estimate James Cordier's net worth to be around $40 million dollars. Despite losing his client's money, it's likely that Cordier has other assets that he's safeguarded to protect his own wealth.
Summarize of the OptionSellers Story
James Cordier traded ~10x larger than he should have and failed to hedge his positions. After natural gas increased by ~60% in 2 weeks, he received a margin call and lost ~$150,000,000 ($150 MILLION dollars)