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INVESTOR UPDATE–OptionSellers.com And INTL FC Stone Investor Losses

The Wolper Law Firm, P.A. previously announced that it is investigating OptionSellers.com and INTL FC Stone after nearly 300 clients collectively lost hundreds of millions due to speculative uncovered (naked) options trading in crude oil and natural gas futures.  The Wolper Law Firm, P.A. has been retained by a number of OptionSellers and INTL FC Stone clients and is preparing to file lawsuits to recover their investment losses.

OptionSellers.com is a Commodity Trading Adviser registered with the Commodities Futures Trading Administration (“CFTC”).  The principal of OptionSellers.com is James Cordier, an industry veteran who often appears on CNBC, Bloomberg, and other news mediums, to speak about the virtues of options trading.  James Cordier is also the author of “The Complete Guide To Options Trading.”  James Cordier advocates that “our goal is to take an aggressive vehicle and manage it conservatively.”  Cordier further states in his book that “while naked options may sound outrageously aggressive and even frightening to some, if it is done correctly, one should be able to sleep very well at night.”  Sadly, OptionSellers.com and its principal traders, James Cordier and Michael Gross, made speculative options bets that cost their clients hundreds of millions.  In a tearful confession Cordier released on YouTube, he blamed the losses on a “rogue wave” that he could not anticipate.

INTL FC Stone also had responsibilities to account holders with regard to the implementation of the disputed options strategy and its management of the liquidation process, which caused investors to realize their losses with no chance of recovery.

What Is Known So Far

OptionSellers.com had clients around the world and managed their money on a discretionary basis through securities accounts held at INTL FC Stone.  The Wolper Law Firm has spoken with numerous clients in different parts of the country and in other countries.  The story is the same.  OptionSellers allegedly promised safe returns through a carefully managed options strategy involving spreads, straddles and strangles.  In reality, by November 2018, OptionSellers.com was swinging for the fences, selling dozens of uncovered (naked) call options on crude oil and natural gas futures.

When an investor owns uncovered (naked) call options, if the underlying security reaches the option strike price, the option may be exercised by the counter-party to the transaction and the investor becomes responsible for purchasing the underlying security or commodity at the market price, however high that may be.  For example, if the investor is short uncovered call options with a strike price of $5, and the underlying security or commodity spikes in price to $10, the investor is obligated to purchase those securities or commodities at the market value.  Because options transactions are internally leveraged, the investor’s financial responsibility in an options transaction is quickly magnified.

The Wolper Law Firm has reviewed account statements and trade activity for many OptionSellers clients.  In the case of OptionSellers, in October and early November 2018, the price of crude oil and natural gas was incrementally declining.  OptionSellers all but abandoned the hedges that protect clients from volatility and instead opted to pursue a higher return by keeping one leg of the options trade overexposed (i.e., the naked call side of the trade).  This violates the basic tenets of Cordier’s own stated investment principles regarding options trading.  As a result, a disproportionate percentage of the energy portion of the portfolio was comprised of uncovered (naked) call options relative to the put options, which were supposed to hedge this position.  This left the portfolio overexposed in the event natural gas prices appreciated.

During the week of November 12, 2018, extreme volatility was experienced in crude oil and natural gas.  Between November 13-15, 2018, the price of natural gas sharply increased from $3.20 to $4.80.  During this period of sharp appreciation, there was also a whipsaw effect, with the price temporarily dropping on November 14, 2018.

This price movement had a devastating impact on investors.  The overall rise in natural gas caused adverse swings in the price of the uncovered (naked) call options held by OptionSellers’ clients.  On November 14, when the price sharply declined, the uncovered put options also experienced extreme volatility.  Thus, both sides of the trade were impacted, with the call side of the trade experiencing the most significant price change.

Contemporaneous with the price changes, INTL FC Stone issued margin calls.  The Wolper Law Firm is examining the timeliness of the margin calls and liquidations to determine if INTL FC Stone complied with applicable margin rules for securities and commodities trading.  By the time the dust settled, customer accounts were completely wiped out and customers owed additional sums of money to INTL FC Stone in the form of margin calls.

Further compounding the problem is that many account holders invested through their Individual Retirements Accounts.  It is generally prohibited to use margin or sell uncovered (naked) options in an IRA account.  Customers who invested through their IRA may also experience penalties and tax exposure in 2018 due to the liquidation of the positions held in the account, which may constitute a premature distribution.

What Are My Legal Rights?

At this stage, many customers have suffered a complete loss of their investment and owe additional sums of money to INTL FC Stone in response to margin calls.  The Wolper Law Firm is preparing to file lawsuits against both OptionSellers and INTL FC Stone.  The potential causes of action relate to the following alleged misconduct:

  • Failure of OptionSellers and INTL FC Stone to properly hedge the options portfolio
  • Failure of OptionSellers and INTL FC Stone to timely notify customers of margin deficits
  • Failure of OptionSellers and INTL FC Stone to comply with applicable margin requirements
  • Failure of OptionSellers and INTL FC Stone to liquidate customer portfolios in an orderly way in compliance with applicable rules and regulations
  • Failure of OptionSellers and INTL FC Stone to place stop loss orders or limit orders in the event of market swings
  • Failure of INTL FC Stone to conduct proper due diligence relating to OptionSellers and James Cordier prior to approving them/him on their platform as a Commodity Trading Advisor

What Should I Do If I Am An OptionSellers And INTL FC Stone Client?

The sole purpose of this release is to investigate the sales practices of OptionSellers.com and INTL FC Stone in connection with the events of the week of November 12, 2018.  Current and former clients of OptionSellers.com and INTL FC Stone, who experienced losses the week of November 12, 2018, are encouraged to call the Wolper Law Firm at 800.931.8452 or contact us by email at mwolper@wolperlawfirm.com.  The Wolper Law Firm represents investors nationwide in securities litigation and arbitration.

Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities.  Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters.

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