Here is an interesting from an option seller on how he lost $200 million.
Option sellers, eat like chickens, poo like elephants, eh?
The piece is a good read for a quiet Asian day, but its more than that. The author refers to how his complex mathematical calculations gave him an 'illusion of control', which is "an expectancy of personal success probability inappropriately higher than the objective probability would warrant."
All went swimmingly until he "experienced the extreme tail of a probability distribution firsthand". (ps. Noobs should note, markets dish up an "extreme tail of a probability distribution" much more often than chance would dictate. We're approaching the first anniversary of the huge one delivered courtesy of the Swiss National Bank and their misguided attempt to control the Swiss Franc.)
It also covers the very real issue of finding liquidity for large trades ... "That meant I had to sell a lot of fuel. More, as I quickly and painfully found out, than the market could bear."
my sales flooded the market with both fuel and information about my position, weakening my bargaining power and making it harder to sell as the days went by. Hitting a market's ceiling like this was something that none of my methodologies accounted for.
The piece diverts into a lengthy discussion on central banks, but this is not where the best learning can come from for a trader. The piece is much better read as an examination of ways a trader can mess up, but if you really want to critique central bank policy there's something here for you also.
