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As a former options trader (market maker) on both the Pacific Stock Exchange and the Chicago Board Options Exchange for a total of eleven years I have seen some bad options trades. I have made some myself.

Until 3/19/03 the worst and most expensive options trade I had ever seen was done by a market maker on the CBOE. This particular market maker was short enough puts on the day of the 1987 crash that he lost approximately $65,000,000 in one day.

However on 3/19/03 Steve Jobs relinquished 27,500,000 employee stock options (ESOs) on Apple in exchange for 5,000,000 shares of restricted stock valued at the time at 14.95 per share or approximately $75,000,000. Of the 27,500,000 ESOs, 7,500,000 were exercisable at 18.30 with an expiration date of 10/19/11 and 20,000,000 were exercisable at 43.59 with an expiration date of 1/12/10.

On Feb. 28, 2005 the stock split 2 for 1, therefore increasing the ESOs to 55,000,000. The exercise prices would then have been 9.15 on 15,000,000 and 21.80 on 40,000,000. The amount of shares Mr. Jobs had went from 5,000,000 to 10,000,000.

As of Friday, 5/25/07, Apple is trading for $112 per share. Therefore the value of the 10,000,000 shares assuming he still owned them all would be $1.12 billion.

However the value of the options would be far greater had he held them until now. The intrinsic value of the deeply in the money ESOs trading at 100 delta would be as follows: (112 - 9.15 x 15,000,000 = 1.54 billion) plus (112 - 21.80 x 40,000,000 = $3.6 billion) for a total of $5.14 billion.

So the exchange of the ESOs for the restricted cost Mr. Jobs over $4 billion. This is the most expensive and worst options trade ever made.

Disclosure: none

AAPL 5-yr chart:

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Source: How Steve Jobs Lost Over $4 Billion