a disturbing element of Steve Fossett's disappearance.
If you have heard of Steve Fossett, it is probably because of his aviation exploits. It is less well known that he financed his later adventures with money made from the option floors in the 80s and 90s. He was a market-maker on the CBOE and financed other market makers around the country. He was pretty well-known in the insular floor trading community.
There was one aspect of his approach that I remember very clearly. All of his traders, at the end of the day, had to make sure they had no option positions that were net short contracts, (or "units", as his people called them). Fossett traders always kept very strict account of how many options they were net long/short, because if they finished the day net short even one odd lot, Steve would notice and take issue.
That is because, if you are net short options in a position, then some part of the price curve has negative leverage risk. If you are net short calls and a takeover happens overnight, or bad earnings/news comes out after the close, the position can lose a great deal of money. Steve knew that and was most compulsive in making sure none of his money was EVER exposed to that kind of risk.
That was his lifelong style.
The risk manager who is so adamant about never taking surprise risk in the financial world is a risk manager who, if he is a pilot, would NEVER go flying in unpopulated areas without GPS. Fossett purportedly had personal GPS devices. A major selling point of those devices is the amelioration of risk. Steve made his name minimizing risk.
I have trouble believing Steve Fossett went flying in the mountains without his GPS on purpose, that is so out of the financial character I have considerable knowledge of....
There was one aspect of his approach that I remember very clearly. All of his traders, at the end of the day, had to make sure they had no option positions that were net short contracts, (or "units", as his people called them). Fossett traders always kept very strict account of how many options they were net long/short, because if they finished the day net short even one odd lot, Steve would notice and take issue.
That is because, if you are net short options in a position, then some part of the price curve has negative leverage risk. If you are net short calls and a takeover happens overnight, or bad earnings/news comes out after the close, the position can lose a great deal of money. Steve knew that and was most compulsive in making sure none of his money was EVER exposed to that kind of risk.
That was his lifelong style.
The risk manager who is so adamant about never taking surprise risk in the financial world is a risk manager who, if he is a pilot, would NEVER go flying in unpopulated areas without GPS. Fossett purportedly had personal GPS devices. A major selling point of those devices is the amelioration of risk. Steve made his name minimizing risk.
I have trouble believing Steve Fossett went flying in the mountains without his GPS on purpose, that is so out of the financial character I have considerable knowledge of....