3 Lessons From the Recent Slide of Options

The fallout out from last week’s Natural Gas surge is still coming down. Its casualties range from professional and supposedly sophisticated hedge funds — ranging from their wealthy clients to small retail investors.

Last week I wrote how Natural Gas’s huge move was exacerbated by hedge funds unwinding positions, which resulted in a 35% price explosion — likely leading to large losses and potential business collapses.

Sure enough, several funds, including high-profile Andurand Commodities Fund lost 20 percent-plus in a matter of days.

Interestingly enough, this comes almost exactly 10 years after hedge fund Amaranth blew up and lost some $9 billion; clients are still waiting to recoup some of their money. There’s a reason they call the natural gas market ‘the widow maker.’

A less high profile firm called Optionsellers.com presents a sad tale about how over 300 of its customer accounts were wiped out to the tune of $70 million.

This may not seem like a huge amount by Wall Street standards. But, when you consider that most of the accounts were held by small retail investors — many of which now actually have debits north of $100k — this was life ruining.

So what lessons can we learn?

Click the Next Page to find out.