Shorting options in FX

Discussions about trading the Forex markets.
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Chris67
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Shorting options in FX

Post by Chris67 » Wed Dec 17, 2003 2:24 am

Have been trading FX in large US investment banks for 10 years
Shorting options is the same as Russina Roulette
I worked with a 10 man prop team that made about 1 billion dollars in 1993 .. they lost it all and more in one week in Feb. 1994 by being short fx options .. relating to stg/yen if i remeber correctly
Shorting OPtions is the xact opposite theory to everything trendfollowing / turtles and sensible trading stands for
i.e limited upside - unlimited downside
My advice would be that you may be lucky and fire off 5 empty chambers in a row but eventually your brains will spill
( sorry for graphic description or hard - line opinions only i am passionate about what i have seen time and time again)

damian
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Re: Shorting options in FX

Post by damian » Wed Dec 17, 2003 5:42 am

Chris67 wrote:I worked with a 10 man prop team that made about 1 billion dollars in 1993
Hi, pls take this is the good natured fun that it is intented.

Lets assume each member of the desk was of equal importance:

$1bio / 10 men = 100mio PnL per man.

Lets say the bank pays a then market 10% of before tax trading Rev in bonus:

$100mio * 10% = $10mio.

That is a nice bonus. I too would probably forget about risk mgt in 1994 if I made $10mio personal income (with no potential personal downside) in 1993.

On topic: I have heard a number of stories like this from investment bank options desks. The common cycle seems to be about 5 yrs: make a packet over 5 yrs/lose it all in 3 days/start again/lose it all again in 5 yrs time.

cheers
damian

Chris67
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shorting OPtions

Post by Chris67 » Wed Dec 17, 2003 6:04 am

Your observations are absolutely spot on ... in fact so close to the truth its unreal ..The management committee of the investment bank had to meet to decide whether to pay these bonuses .. biggest in history within the bank .. 45 % of the mgt said what about if they lose the same they have a free bet .. as it turned out these 45 % were more schrewd than the 55 % who authorised the bonuses .. 6 weeks later the prop guys ( all but 2 ) walked away up several million p.a and the bank was where it started

Moral of the story : Get a job as a bank prop trader its the biggest free option ticket ever written and shows the utter pointlessness of banks employing large prop teams .. correlation = 1 i've found and they get paid on average if they make or lose !!!!!

Macro
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Re: Shorting options in FX

Post by Macro » Sat Sep 26, 2015 2:42 am

"I worked with a 10 man prop team that made about 1 billion dollars in 1993 .. they lost it all and more in one week in Feb. 1994 by being short fx options"

CSJ?

Chris67
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Re: Shorting options in FX

Post by Chris67 » Tue Nov 24, 2015 4:26 am

no the whole team I believe - whatever happened wasn't good

Macro
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Re: Shorting options in FX

Post by Macro » Thu Mar 31, 2016 7:50 pm

my former boss was also part of that gs macro prop team... u guys probably knew each other... must have been a phenomenal exp being part of it during very interesting times (even with the 1993 short vol blow-up).

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