Options Income Done Right and Wrong

In the week ended 16 November 2018 about 300 accounts at a futures commission merchant fell below their maintenance margin, and the firm liquidated every position in them. The accounts belonged to roughly 290 clients of OptionSellers.com, a commodity trading advisor in Tampa, Florida run by James Cordier, many of them retirees. Cordier had co-written The Complete Guide to Option Selling (McGraw-Hill; first edition December 2004, third edition 2014), and the book was the firm's marketing. Its idea was simple: most options expire worthless, so the seller wins most of the time. The firm held discretionary authority over the accounts and used it to sell deep out-of-the-money options on commodity futures, at the end with a concentration of short natural-gas calls and short crude-oil puts (plaintiffs' counsel's description, reported).

Natural gas moved first. The front-month NYMEX contract settled at $4.101 on 13 November and $4.837 on 14 November, up 17.9% in a day (EIA settlement series). Crude oil had been falling for six weeks. The clients did not just lose what was in their accounts; many ended owing the clearing firm more. INTL FCStone, now StoneX, reported a net receivable from the accounts of $31.3 million in December 2018, $29.2 million in September 2019, $29.0 million in September 2020 and $11.1 million in March 2024, and won the arbitrations that reached decisions (StoneX filings). Cordier apologised in a YouTube video, saying the volatility "likely cost me my hedge fund" (Bloomberg, reported). No audited record of the firm's results before 2018 has been found, and no CFTC or NFA enforcement action against the firm or Cordier was found by the companion's checks; the public record of the strategy is its failure, documented in a clearing firm's SEC filings.

Set beside it a record that is public, rules-based and forty years long. The Cboe S&P 500 BuyWrite Index, BXM, holds the index and sells a one-month at-the-money call against it every month. From June 1986 to September 2026 it returned about 8.6% a year with about 10.6% volatility, against about 11.2% and 15.2% for the S&P 500 with dividends, and its Sharpe ratio, measured from July 1989, was the same as the index's: 0.56 (Cboe factsheet; gross of all costs and taxes, and back-tested before the index was launched in 2002). Its worst drawdown was −35.8%, from June 2008 to February 2009, against −50.9% for the index. The put-writing version, PUT, did slightly better on a risk-adjusted basis over 1986–2018 and somewhat worse than the index over its live period.