James Cordier founded and ran a hedge fund designed for naked option selling. What an option is, is giving an investor the right to buy or sell a security within a specific time period. The investor is not obligated to buy or sell. When options are not bound by a hedge fund, they are said to be naked.
The Florida based hedge fund known as Optionsellers.com recently collapsed. It had been established by the securities firm FCStone.
James Cordier believed heavily that naked options trading is the smartest way to invest. He even co-authored a book titled “The Complete Guide To Option Selling.” It is believed that Cordier’s strategy of naked option selling is what caused the collapse of Optionsellers.com.
Cornier’s strategy was to sell numerous options in the energy sector. He told investors that options had amazing benefits while only slightly increasing the risk of the investor. This was not the case. If a market, in this case, the energy sector, moves aggressively against a naked short options position, it creates almost unmeasurable risk for the investor.
FCStone decided that when there were not enough funds in customer accounts to cover the sales, then they would borrow on margin against the client accounts to cover the costs. When the market then shifted, the customer not only lost 100 percent of their principal investment, but also owed money to FCStone to repay the margin loan. This predatory sales tactic is what caused the collapse of Optionsellers.com.
Oakes & Fosher dedicates its entire legal practice to helping investors across the nation. If you, or someone you know, lost money investing with James Cordier, Optionsellers.com, FCStone, or Naked Options in general, please contact Oakes & Fosher for a free and private consultation.