James Cordier: Tragedy or Laughingstock? (Part 2)

Last time, I began telling the catastrophic fate suffered by clients of James Cordier and his service OptionSeller.com.

We don’t know the full story, and most articles and/or comments I have read on the matter have failed to acknowledge this. “Illini Trader (IT),” from my last post, claimed Cordier made 60% the year before IT first looked into investing with him. Their stated target was 20-25% p.a. so longer-term investors may have still come out ahead despite the events of Nov 2018.

Appropriate client allocation would also put a totally different spin on the situation. Allocating a small fraction to Cordier’s firm would have been a responsible thing to do, and we can hope all/most of the 290 investors did just that.

Appropriate disclaimers to ensure clients knew in advance what they were signing up for would have facilitated appropriate allocation. Cordier should get off scot-free if he gave clients my “worst sales pitch ever” (see second paragraph here). He needed to be absolutely clear in explaining this as a high risk/high reward situation that could leave them in negative territory (being separately managed accounts rather than a hedge fund). Accepting only accredited investors might further bolster Cordier’s defense from damaged investors.

We simply do not know what took place beforehand. This puts us in a strained position from which to judge.

I have since decided that Cordier is just a business and not worthy of our tears. He previously worked under a different name (why?) and he’ll probably work this space again (unless found guilty of mass deception?). Depending how much he has earned in the past and built up in savings and investment, it’s hard not to think that he’ll be fine. Indeed, some viewers have criticized his gall in wearing a Rolex watch while giving a tearful apology seen in the video.

I want to make one final comment about leverage.

Some gurus have criticized Cordier’s excessive leverage, but I don’t think that is specific enough to be meaningful. I can sell ten 2700/2600 vertical spreads for $100,000 gross risk. I can also sell one 2700/1700 vertical spread for the same. The former can easily get wiped out whereas the latter is very unlikely to be.

In Cordier’s case, it was specifically the futures leverage associated with his total number of contracts that resulted in catastrophic loss. The total number of contracts generated a huge drawdown that triggered a margin call. Selling fewer contracts NTM could have prevented this occurrence (see fourth paragraph here).