Curriculum·R406 Options and Structured Positions·about 42 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 sold options on S&P 500 futures as its strategy, collecting premium in exchange for the obligations that sale creates. The fund had roughly $800M under management. Between 2 and 7 February 2018 equity volatility rose sharply, with the VIX more than doubling in a single session to its highest level in six and a half years. The fund's net asset value fell from $10.34 to $1.94, a decline of about 81 percent across two sessions, and it closed to new investment on 7 February. Related funds were reported to have lost more than $1B in total. FINRA subsequently censured a distributing broker-dealer over supervisory failures in the sale of the fund, with a $400,000 fine and $3.13M of restitution.
- The decision point
- The underlying index fell, 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.
- Recorded loss
- $800,000,000
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://finance.yahoo.com/news/u-ljm-fund-lost-most-152828038.html
- https://www.stocklaw.com/securities-fraud-blog/2018/june/losses-in-ljm-partners-funds-spotlight-suitabili/
- https://spotgamma.com/gamma-squeeze/
Confidence medium·Volatility low·Reviewed 2026-08-07·Owner unassigned
Contested
Reported LJM figures vary: roughly $800M in the fund itself against more than $1B of losses across related vehicles, and the net asset value decline is stated as more than 80 percent and as 81 percent from $10.34 to $1.94 depending on the dates compared. 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.