This is a portion of the 'morning after story' on Niederhoffer,
as culled from the WSJ..................
<< How did a fellow who prides himself on being a pal of George Soros, who muses engagingly about sex, stocks and music, get into such a pickle? Mr. Niederhoffer says the root of the problem was an innocuous position in out-of-the-money Standard & Poors puts that did him in, when he was already weakened by a bet-gone-wrong in Thailand.
Selling these options, which gave the buyer a right to sell him a basket of stocks should the market plummet, looked like a great way to get some extra cash -- as long as the market stayed high.
It just didn't turn out that way. Mr. Niederhoffer made his bet on the S&P 500-stock index when it was in the mid-900's. By mid-Monday,
as the market tumbled, he knew he was in trouble. The volatility in
the market, as well as the decline in stock prices, made the options he had sold much more valuable. Suddenly, the amount of margin
he owed went up tenfold.
He doesn't know exactly what size his position was by the end of the day Monday, but says that when the Chicago Mercantile Exchange priced his positions at 4:30 EST, he received a margin call for about $50 million. He couldn't meet the margin call and was forced to liquidate his positions Tuesday morning, just as the market reached it's nadir. "We got cleared out at the bottom, " he said. "There was nothing I could do." >> |
