Leaderboard

There is a very real danger to the clearing houses , and it's customers, during an extreme case like this. When I was trading on Comex in the 80's, during one of the gold short squeezes, one of the main clearing firms that cleared most of the members went bust and it affected accounts held there which caused increased regulation. I think this was the catalyst for the creation of the SPAN margining system that is still used today for futures/futures options. What caused the squeeze, during this one event, was one floor trader who over the past year of a bear market in gold, just sold OTM calls every month and they expired worthless. He kept doing it, and increasing his size, where he eventually reached the exchanges "member limit" of 4000 options. When that wasn't enough for him he purchased 3 more seats for his wife, brother in law etc. so he could get to 12,000 short OTM calls. At his peak he had amassed around $50 million which, in 1983 for an individual floor trader, was a LOT of money for 1 year. You can guess how this ended up. Did he really think the metals dealers "upstairs" wouldn't know what is happening? I remember it clearly. Gold, which was around $240, had had a "normal" day's trading range of $2-$3. Then one day it was up $10 which was out of the ordinary and he sold more calls. The next day it was up $30 and went into a GME type parabolic rise to $500+ over the next few days causing a $26 million margin call. He left his clearing house "holding the bag" and was apprehended at JFK trying to flee the country with suitcases full of cash. Here's the story..... Whether it's the "Optionsellers/Cordier" story, GME, or this one, it's comes around with different players when the last memory fades. https://www.latimes.com/archives/la-xpm-1985-05-20-fi-16632-story.html