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"The would-be plaintiff representing investors in the case, Christian Iovin of Washington state, sold $200,000 worth of call options on GameStop shares when the

"The would-be plaintiff representing investors in the case, Christian Iovin of Washington state, sold $200,000 worth of call options on GameStop shares when the stock was below $100. The stock quickly eclipsed $400 a share, forcing him to buy the calls back at elevated prices." He's being sued by someone who sold naked call options and got burned. This case is going nowhere. I'd love to start suing people for every time I take a loss while trading.

brianwawok 6y ago
Who in 2021 thought naked calls are a good idea?
- xiphias2 6y ago
  A lot of people who think that buying puts is ,,too expensive''. Nassim Taleb made money by understanding that out of money call options were underpriced, not overpriced how people think generally. People don't learn from the past.
  - Animats 6y ago
    Taleb made money in 2008 by buying options that were way out of the money and hoping for a crash. All other years, his fund lost money. That strategy would have lost money over the last decade, because there wasn't a crash. Whether that strategy is a net win over a business cycle isn't known. Taleb's funds never published their full results.
    - base698 6y ago
      And in addition considering everyone has read Taleb's books there has been accelerating interest in options which make the prices quite high and IV crush painful. End result, even harder to win with OOTM options even if you are correct.
    - koolba 6y ago
      You don’t count the 30% drop last March as a crash? It doesn’t matter if it bounces back later that year. Any puts near those levels would have cost peanuts and paid handsomely.
    - fractionalhare 6y ago
      I guess you're probably talking about Universa, which Taleb is closely affiliated with? Taleb also ran his own shop Empirica for five years, 2000 - 2005. It beat the market on an absolute basis in year one (incidentally, during the dotcom crash) then had mostly negative results all other years. I don't specialize in derivatives so I can't speak to how compelling his industry work is versus his writing. But my understanding is Taleb's strategies were explicitly designed to lose small amounts of money often and win huge amounts of money occasionally. The idea is basically to go long vega and gamma waiting for an apparently rare event you believe will happen somewhat more frequently than expected. In the meantime you'll eat the theta and usually lose money, but ideally within certain risk parameters.
      - Tycho 6y ago
        This paper talks about a strategy of buying OOTM options and the massive returns it would (occasionally) generate, and how to properly judge such a strategy. https://arxiv.org/pdf/1401.2524.pdf https://arxiv.org/pdf/1401.2524.pdf
    - SkyMarshal 6y ago
      Taleb's strategy doesn't depend on a crash per se, but on unusual volatility in either direction. He accumulates a portfolio of puts or calls that misprice tail risk. And yes it sometimes takes years to pay off, during which time the fund is paying management fees and options purchase prices. So it bleeds money over time, and then makes it back and more at random intervals. That's by design. In fact it's a similar model to Venture Capital in that way.
- deleted 6y ago
  [deleted]
xiphias2 6y ago
You can, this is America :) You may not always win though.
belltaco 6y ago
Selling naked call options on a meme stock no less(assuming he sold them after the Reddit hype train started). Also selling 200k worth meant he would have made it out like a bandit if the bet succeeded. I wonder what his net worth is if the broker allowed him to be leveraged so much?
- julienfr112 6y ago
  there is max fixed gain when selling a call, right ?
  - collias 6y ago
    Yes, your max gain is whatever premium you collect from the sale. Your max loss is infinite, as the plaintiff has now discovered.
  - bunnyfoofoo 6y ago
    The premium is the fixed gain. Naked means you’re not covered by already owning the stock so your losses become infinite.
  - fractionalhare 6y ago
    Yes. The initial cost of the trade is a credit equal to the price per call multiplied by the number of calls you sold. This is the maximum you can make. Your risk on the other hand is theoretically unlimited, because the price of the underlying is theoretically uncapped. That's when you sell a naked call. If you instead sell a covered call, you keep 100 * the number of calls sold in your account as collateral. Then you still only receive an exact credit at the time the position opens, but your risk is capped and defined as the price of the collateral at the time the position opened.
    - bionsystem 6y ago
      If you sell a covered call you have no risk right ? Aren't you just capping potential returns in exchange for immediate premium ?
codecamper 6y ago
The Tasty Trade guy did something similar but then sold the strangle and sold vol for 600% and bought it back at 400% and managed to cancel out his losses. that guy is an options trading ninja.
sixQuarks 6y ago
I wouldn’t be so sure. Yes it’s ridiculous to sue after doing something so stupid, however if it’s true that he’s a registered financial advisor, he may not get out of this Scott free.
- ra7 6y ago
  He wasn't giving advice as a registered financial advisor though. I don't think anybody even knew he was one until WSJ published a piece on him. How does this hold up in courts?
  - JumpCrisscross 6y ago
    > How does this hold up in courts? Surprised they went for the courts instead of arbitration. Securities arbitration is notoriously biased towards the client. And even an allegation makes it onto the individual’s permanent regulatory record. Smells like a PR stunt.
    - detaro 6y ago
      Don't you need some kind of established relationship to go for arbitration? I.e. sure, against your advisor or broker that makes sense, but against a random person you weren't a client of?
      - JumpCrisscross 6y ago
        > Don't you need some kind of established relationship to go for arbitration? Broadly speaking, I believe so. But FINRA arbitration is odd. I wouldn't be surprised if this individual could claim he thought DeepFuckingValue was giving him advice over Reddit to gain standing. From there, it's in the system.
  - compiler-guy 6y ago
    If you have a license, you have responsibilities as defined by the regulations involved, regardless of whether the people you interact with know you have those responsibilities or not.
newacct583 6y ago
Indeed, there's no meat to the suit detailed. Still, though. The fact that DeepFuckingValue just turns out to have been a licensed broker complicates the narrative quite a bit. Needless to say he can be expected to have known that the whole short trading theory of "Hold the Line" was bunk, and did nothing to disabuse the community of it. I say it every time this comes up: this guy's criminal exposure is really significant. I find the idea that he Just Happened to stumble on a tulip bubble and had nothing to do with encouraging it just too much to believe. What we know of his public postings doesn't rise to criminal behavior, but then we don't know what sock puppets he might have been operating or what trades he was making privately. And the incentives all point to this guy being guilty of securities fraud. But no, this suit isn't going anywhere.
- emteycz 6y ago
  DFV never said a thing about short squeezing. Watch his content, don't trust the media. He bought the stock as a long term investment because he thought it's severely undervalued and it will rise with new leadership.
  - newacct583 6y ago
    > DFV never said a think about short squeezing. But did Keith Gill? All the argument here tends to treat "/u/DeepFuckingValue" as the sole authority of what this guy did, and in context that seems outrageously naive. Accounts all over WSB were pushing this stock like crazy, and this guys Just So Happens to have been a huge beneficiary, when he was absolutely expert enough to have understood the bubble (and importantly, how the bubble was driven by the WSB community misunderstanding short trading)? Again, his expertise and the incentives just don't line up here. That's not proof, but it's pretty good justification for suspicion. Occam's favorite explanation has to be that this guy ran a pump and dump.
    - emteycz 6y ago
      Eh, no, please don't try to do this, that's the first step towards a really terrible world. We always assume innocence first, there needs to be proof to claim otherwise. There were many more people who invested at the same time and got big profit just like he did. DFV didn't even sell even a portion of his position anywhere near the top (he sold a small portion near one of the much lower highs, around $100 IIRC). You could make this argument about literally anyone on Youtube or TV talking about stocks. Don't, please.
dilippkumar 6y ago
> “Gill’s deceitful and manipulative conduct not only violated numerous industry regulations and rules, but also various securities laws by undermining the integrity of the market for GameStop shares,” the suit said. “He caused enormous losses not only to those who bought option contracts, but also to those who fell for Gill’s act and bought GameStop stock during the market frenzy at greatly inflated prices.” As a regular person (with perhaps a higher-than-average exposure to various hazardous memes), this claim look bizarre. Taking out adjectives, a part of this reads: "Gill's <adjectives> conduct not only violated <blah> regulations and rules, but also various securities laws by undermining the integrity of the market for GameStop shares" How do I read this? > Gill's conduct violated regulations and rules. > Gill's conduct undermined the integrity of the market, and therefore violated various securities laws. Was it really Gill's conduct that undermined the integrity of the market? It doesn't look like that to me, but IANAL. As for his conduct violating regulations and rules, I'd really like to read these regulations and rules that govern how someone is expected to conduct themselves on r/WSB and youtube.
- silexia 6y ago
  I have seen a lot of protests defending Gill. I think there is another side to the story though with many people who lost money buying the stock (selling options is different) based on his advice. Gill is held to a much higher standard than a normal person as he is a licensed security broker. If you look at my comment history on HN, you will see at the time I was pointing out a lot of Redditors were engaging in a pump and dump scheme. Pump and dumps are illegal and regulated by the SEC. If Gill, a licensed security broker, is found to have been a part of this he could end up losing.
  - mattnewton 6y ago
    Gill has been advocating GME as an undervalued “value” play for over a year on his YouTube channel, his behavior is pretty different than the reddit pump accounts. But, he is the most visible and de-anonymized target for this kind of lawsuit.
    - 6y ago
shin_lao 6y ago
I agree with your "can't sue over loss of trading", but that's not to me the problem. If he is a professional, Gill is in trouble. When I was working in capital markets, my contract stipulated that I had to disclose any trading activity to my employer. That's because, for example, I could be using insider information to conduct some trades privately, which is unethical and illegal. Or I could bet against the bank. Etc. I can't remember how many trainings I had regarding what I could do and not do in terms of trading privately. Pretty sure that teasing masses on Reddit would have had me fired.
colechristensen 6y ago
If you watched r/wallstreebets during this whole thing there was a lot of stuff going on; people saying things, people buying advertisements and billboards, people explicitly encouraging market manipulation... there was a lot going on which could easily be marked as securities fraud.

brianwawok 6y ago

Who in 2021 thought naked calls are a good idea?

xiphias2 6y ago
A lot of people who think that buying puts is ,,too expensive''. Nassim Taleb made money by understanding that out of money call options were underpriced, not overpriced how people think generally. People don't learn from the past.
- Animats 6y ago
  Taleb made money in 2008 by buying options that were way out of the money and hoping for a crash. All other years, his fund lost money. That strategy would have lost money over the last decade, because there wasn't a crash. Whether that strategy is a net win over a business cycle isn't known. Taleb's funds never published their full results.
  - base698 6y ago
    And in addition considering everyone has read Taleb's books there has been accelerating interest in options which make the prices quite high and IV crush painful. End result, even harder to win with OOTM options even if you are correct.
  - koolba 6y ago
    You don’t count the 30% drop last March as a crash? It doesn’t matter if it bounces back later that year. Any puts near those levels would have cost peanuts and paid handsomely.
  - fractionalhare 6y ago
    I guess you're probably talking about Universa, which Taleb is closely affiliated with? Taleb also ran his own shop Empirica for five years, 2000 - 2005. It beat the market on an absolute basis in year one (incidentally, during the dotcom crash) then had mostly negative results all other years. I don't specialize in derivatives so I can't speak to how compelling his industry work is versus his writing. But my understanding is Taleb's strategies were explicitly designed to lose small amounts of money often and win huge amounts of money occasionally. The idea is basically to go long vega and gamma waiting for an apparently rare event you believe will happen somewhat more frequently than expected. In the meantime you'll eat the theta and usually lose money, but ideally within certain risk parameters.
    - Tycho 6y ago
      This paper talks about a strategy of buying OOTM options and the massive returns it would (occasionally) generate, and how to properly judge such a strategy. https://arxiv.org/pdf/1401.2524.pdf https://arxiv.org/pdf/1401.2524.pdf
  - SkyMarshal 6y ago
    Taleb's strategy doesn't depend on a crash per se, but on unusual volatility in either direction. He accumulates a portfolio of puts or calls that misprice tail risk. And yes it sometimes takes years to pay off, during which time the fund is paying management fees and options purchase prices. So it bleeds money over time, and then makes it back and more at random intervals. That's by design. In fact it's a similar model to Venture Capital in that way.
deleted 6y ago
[deleted]

xiphias2 6y ago

You can, this is America :) You may not always win though.

belltaco 6y ago

Selling naked call options on a meme stock no less(assuming he sold them after the Reddit hype train started). Also selling 200k worth meant he would have made it out like a bandit if the bet succeeded. I wonder what his net worth is if the broker allowed him to be leveraged so much?

julienfr112 6y ago
there is max fixed gain when selling a call, right ?
- collias 6y ago
  Yes, your max gain is whatever premium you collect from the sale. Your max loss is infinite, as the plaintiff has now discovered.
- bunnyfoofoo 6y ago
  The premium is the fixed gain. Naked means you’re not covered by already owning the stock so your losses become infinite.
- fractionalhare 6y ago
  Yes. The initial cost of the trade is a credit equal to the price per call multiplied by the number of calls you sold. This is the maximum you can make. Your risk on the other hand is theoretically unlimited, because the price of the underlying is theoretically uncapped. That's when you sell a naked call. If you instead sell a covered call, you keep 100 * the number of calls sold in your account as collateral. Then you still only receive an exact credit at the time the position opens, but your risk is capped and defined as the price of the collateral at the time the position opened.
  - bionsystem 6y ago
    If you sell a covered call you have no risk right ? Aren't you just capping potential returns in exchange for immediate premium ?

codecamper 6y ago

The Tasty Trade guy did something similar but then sold the strangle and sold vol for 600% and bought it back at 400% and managed to cancel out his losses. that guy is an options trading ninja.

sixQuarks 6y ago

I wouldn’t be so sure. Yes it’s ridiculous to sue after doing something so stupid, however if it’s true that he’s a registered financial advisor, he may not get out of this Scott free.

ra7 6y ago
He wasn't giving advice as a registered financial advisor though. I don't think anybody even knew he was one until WSJ published a piece on him. How does this hold up in courts?
- JumpCrisscross 6y ago
  > How does this hold up in courts? Surprised they went for the courts instead of arbitration. Securities arbitration is notoriously biased towards the client. And even an allegation makes it onto the individual’s permanent regulatory record. Smells like a PR stunt.
  - detaro 6y ago
    Don't you need some kind of established relationship to go for arbitration? I.e. sure, against your advisor or broker that makes sense, but against a random person you weren't a client of?
    - JumpCrisscross 6y ago
      > Don't you need some kind of established relationship to go for arbitration? Broadly speaking, I believe so. But FINRA arbitration is odd. I wouldn't be surprised if this individual could claim he thought DeepFuckingValue was giving him advice over Reddit to gain standing. From there, it's in the system.
- compiler-guy 6y ago
  If you have a license, you have responsibilities as defined by the regulations involved, regardless of whether the people you interact with know you have those responsibilities or not.

newacct583 6y ago

Indeed, there's no meat to the suit detailed. Still, though. The fact that DeepFuckingValue just turns out to have been a licensed broker complicates the narrative quite a bit. Needless to say he can be expected to have known that the whole short trading theory of "Hold the Line" was bunk, and did nothing to disabuse the community of it. I say it every time this comes up: this guy's criminal exposure is really significant. I find the idea that he Just Happened to stumble on a tulip bubble and had nothing to do with encouraging it just too much to believe. What we know of his public postings doesn't rise to criminal behavior, but then we don't know what sock puppets he might have been operating or what trades he was making privately. And the incentives all point to this guy being guilty of securities fraud. But no, this suit isn't going anywhere.

emteycz 6y ago
DFV never said a thing about short squeezing. Watch his content, don't trust the media. He bought the stock as a long term investment because he thought it's severely undervalued and it will rise with new leadership.
- newacct583 6y ago
  > DFV never said a think about short squeezing. But did Keith Gill? All the argument here tends to treat "/u/DeepFuckingValue" as the sole authority of what this guy did, and in context that seems outrageously naive. Accounts all over WSB were pushing this stock like crazy, and this guys Just So Happens to have been a huge beneficiary, when he was absolutely expert enough to have understood the bubble (and importantly, how the bubble was driven by the WSB community misunderstanding short trading)? Again, his expertise and the incentives just don't line up here. That's not proof, but it's pretty good justification for suspicion. Occam's favorite explanation has to be that this guy ran a pump and dump.
  - emteycz 6y ago
    Eh, no, please don't try to do this, that's the first step towards a really terrible world. We always assume innocence first, there needs to be proof to claim otherwise. There were many more people who invested at the same time and got big profit just like he did. DFV didn't even sell even a portion of his position anywhere near the top (he sold a small portion near one of the much lower highs, around $100 IIRC). You could make this argument about literally anyone on Youtube or TV talking about stocks. Don't, please.

dilippkumar 6y ago

> “Gill’s deceitful and manipulative conduct not only violated numerous industry regulations and rules, but also various securities laws by undermining the integrity of the market for GameStop shares,” the suit said. “He caused enormous losses not only to those who bought option contracts, but also to those who fell for Gill’s act and bought GameStop stock during the market frenzy at greatly inflated prices.” As a regular person (with perhaps a higher-than-average exposure to various hazardous memes), this claim look bizarre. Taking out adjectives, a part of this reads: "Gill's <adjectives> conduct not only violated <blah> regulations and rules, but also various securities laws by undermining the integrity of the market for GameStop shares" How do I read this? > Gill's conduct violated regulations and rules. > Gill's conduct undermined the integrity of the market, and therefore violated various securities laws. Was it really Gill's conduct that undermined the integrity of the market? It doesn't look like that to me, but IANAL. As for his conduct violating regulations and rules, I'd really like to read these regulations and rules that govern how someone is expected to conduct themselves on r/WSB and youtube.

silexia 6y ago
I have seen a lot of protests defending Gill. I think there is another side to the story though with many people who lost money buying the stock (selling options is different) based on his advice. Gill is held to a much higher standard than a normal person as he is a licensed security broker. If you look at my comment history on HN, you will see at the time I was pointing out a lot of Redditors were engaging in a pump and dump scheme. Pump and dumps are illegal and regulated by the SEC. If Gill, a licensed security broker, is found to have been a part of this he could end up losing.
- mattnewton 6y ago
  Gill has been advocating GME as an undervalued “value” play for over a year on his YouTube channel, his behavior is pretty different than the reddit pump accounts. But, he is the most visible and de-anonymized target for this kind of lawsuit.
  - 6y ago

shin_lao 6y ago

I agree with your "can't sue over loss of trading", but that's not to me the problem. If he is a professional, Gill is in trouble. When I was working in capital markets, my contract stipulated that I had to disclose any trading activity to my employer. That's because, for example, I could be using insider information to conduct some trades privately, which is unethical and illegal. Or I could bet against the bank. Etc. I can't remember how many trainings I had regarding what I could do and not do in terms of trading privately. Pretty sure that teasing masses on Reddit would have had me fired.

colechristensen 6y ago

If you watched r/wallstreebets during this whole thing there was a lot of stuff going on; people saying things, people buying advertisements and billboards, people explicitly encouraging market manipulation... there was a lot going on which could easily be marked as securities fraud.