OptionSellers.com

Quite suddenly, a web based operation called OptionSellers.com went dark last month.A casualty of the spike in natural gas prices. More accurately, it was a casualty of hubris, as manifest in a failure to hedge against natural gas prices.

The suckers -- excuse me, its investors -- received an email November 15 with the subject line "Catastrophic Loss Event."

The catastrophic loss was that OS.com had bet heavily that natural gas prices would NOT suddenly spike any time soon. As the chart I've pasted on to this blog post indicates ... nat gas prices spiked in a big way.

This was part of the pitch that you might have encountered had you gone onto their website before the spike. "Stocks are great, until they aren't. Options are better, but most make the mistake of buying them."

OOOOOh, I see, so the trick is to be on the SELLING side. Taking a small amount of money in return for a promise to pay off later if specified events happen in the market. It's easy to design the options so that the pay-off is unlikely. You get the money from risk averse investors. You never have to pay-off. Everybody is happy.

There's an old image still often used for strategies like this. They are all a bit like picking up nickels in front of a steam roller. Your bet is that you will be nimbler than the steam roller. Which brings us back to the now rolled-up suckers of OS.com.

Now not only were OS.com's suckers wiped out of whatever they had on account. THEY are now liable for those bets. The Dear John email I mentioned above said that the clearing company, FC Stone, was sending out "a call to add funds to bring the balance back up to zero" on the red ink liquidated accounts. "We recommend balances be paid."

Oops. That steam roller HURTS, doesn't it?

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