Curriculum·R406 Options and Structured Positions·about 43 min
The Greeks in plain language
By the end of this lesson you can
- →Define delta, gamma, vega and theta as answers to four separate questions
- →Compute the profit and loss on a position from its Greeks and a stated shock
- →Show why a short option position loses most from the term nobody watches
- →Explain why gamma makes a hedged position require continuous work
Senior · enrolled learners
This lesson opens with The LJM Preservation and Growth Fund, February 2018.
- What happened
- The LJM Preservation and Growth Fund, a mutual fund launched in 2013, sold volatility: it bought and sold calls and puts on S&P 500 futures, was typically net short, holding more uncovered contracts than covered, and used put spreads as its risk mitigation. Reuters described it as a once-$800M fund. On 5 February 2018 the S&P 500 fell about 4.1 percent and the VIX more than doubled, from 17.31 to 37.32, which FINRA describes as at that time the largest one-day rise in its history. Across 5 and 6 February the fund lost about 80 percent of its value. It closed to new investors on 7 February and was liquidated on 29 March 2018. The SEC later alleged that the funds LJM managed lost more than $1B over those two trading days and that LJM and two portfolio managers had misled investors about the risk; they consented to final judgments in June 2025 without admitting or denying the allegations. FINRA separately censured one distributing broker-dealer, Cambridge Investment Research, over supervisory failures in selling the fund, with a $400,000 fine and $3.13M of restitution.
- The decision point
- The underlying index fell about 4 percent, and the index move alone does not explain the size of the loss. A sold option is short two separate sensitivities at once: it loses as the price moves and it loses again as implied volatility rises, and those two things happen together by construction. The position was described by its premium income, which is the term that behaves best, and priced by the other three, which do not.
What you will be able to answer
- →What are the four Greeks?
- →How do you compute position profit and loss?
- →Which term hurt LJM most?
- →Why does gamma require work?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.cnbc.com/2018/02/08/fund-crashes-after-wrong-way-volatility-trade.html
- https://www.business-standard.com/amp/article/reuters/u-s-fund-that-lost-most-of-its-value-shuts-doors-to-new-investment-118020900219_1.html
- https://www.finra.org/sites/default/files/fda_documents/2018056443801%20Cambridge%20Investment%20Research%2C%20Inc.%20CRD%2039543%20AWC%20jlg.pdf
- https://www.sec.gov/news/press-release/2021-89
- https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26338
- https://cdn.cboe.com/api/global/us_indices/daily_prices/VIX_History.csv
- https://www.m-x.ca/f_publications_en/focus3_en.pdf
- https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf
Confidence medium·Volatility low·Reviewed 2026-08-07·Owner unassigned
Contested
Reported LJM figures vary. Reuters called it a once-$800M fund and reported a loss of more than 80 percent in the week to 7 February, citing Morningstar; CNBC reported 82 percent over the week; FINRA's AWC with Cambridge, which Cambridge accepted without admitting or denying the findings, says about 80 percent across 5 and 6 February. The more than $1B is the SEC complaint's figure across all funds LJM managed, an allegation the defendants settled without admitting or denying. CNBC also said the VIX reached its highest level in six and a half years; Cboe's own daily history shows the 5 February close of 37.32 was the highest since 24 August 2015 (40.74), so this lesson does not repeat that phrase. The mechanism is not in dispute and the arithmetic in this lesson uses stated illustrative parameters rather than the fund's actual book.
R403-04 uses OptionSellers.com in November 2018 as an expectancy case, because a naked short has no defined risk and therefore no computable R-multiple. This lesson uses LJM in February 2018 as a Greeks case, because the loss was dominated by the volatility term rather than the price term. Two different failures in the same family and the split is deliberate. Keep it.
The position Greeks in part two are stated inputs chosen to be arithmetically clean, not outputs of a pricing model. Real values depend on strike, time and volatility and should be read from the venue. The method is the transferable part.