Jeff Watson just put up a great story about rogue trader Darryl Zimmerman on his blog.

Reminds me of my own little rogue trading episode when for a brief time I was a stockbroker in the early 80s. It had to do with options, and a margin calculation error in the firms computer system that I had stumbled on. But I didn't purposely set out to exploit it. It's just that when my position went under water (undetected), I used it to try to buy time and trade out of the hole. But of course it only made things worse. I would bet you that is how 90% of rogue traders start out– innocently and just unlucky. They get under water, mistakenly try to dig out by taking on more risk, but never make it and instead get sucked into a vortex that spirals totally out of control. (I would also bet there are a lot of rogue traders that do managed to dig out and no-one is the wiser.) I was down about $50K or so at the worst point. Pretty scary for a young guy on a $5000 monthly draw barely making his commission nut (it was the bear market of 82).

I managed to battle back and cut the loss in half, but at that point the firm detected the error. I had already given my notice, having decided to leave the business, so I didn't even actually get fired. (I didn't get invited to stay either.) The firm pointed out to me the error in the margin-calculations, but never asked me directly if I knew about it, and didn't even grill me in the way that I had expected (I was scared shitless going into that meeting I'll tell you). They also settled immediately for only about a quarter of the value I owed them (their offer). I dawned on me that it was much cleaner for them that this little software problem just be quietly fixed than get into messy investigations, fines, and the loss of credibility. In that sense I probably actually them a favour in a way. My strategy was certainly not mainstream (I think it was something stupid like selling deep in the money stock options and using the premiums to buy bonds at 12-14% interest rates), but it inadvertently uncovered the bug. Some option trader with real money could have blind-sided them pretty hard at some point.

So what does it feels like to think you have lost everything (and more). Some time shortly after, I was driving up to nearby Edelweiss Valley to go night-skiing, and on the way the dam just burst. I bawled my eyes out for about 20 minutes. And then suddenly this tremendous feeling of peace and calm overwhelmed me. It was an indescribably liberating experience - of having hit bottom, of having nothing left to lose, and having nowhere to go but up. To know that whatever you did next, by definition would better than what you were doing now. I had a great ski that night, and not long after was on a whole new career path– in satellite communications.

It's a strong reminder to me today, that if you're utterly miserable and struggling to hang on to something or to keep some situation together, if you just cut yourself loose and let it all go– all of it– there is some kind of beautiful, magical, power in that. There is nothing like a truly fresh start– pure, unadulterated, unblemished possibility.

BTW none of my clients money was involved. This was all in my personal options account. (As a broker, I was always much more interested in trading than selling anyway- I was not a great broker from the firm's perspective, even before the flame-out.)


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