How the Zaky Apple Investors Could've Saved Themselves

Last week, we learned that Andy Zaky, proprietor of an "Apple-only" hedge fund, had lost nearly all of the $10.6 million of investor capital in the fund after Apple (AAPL) shares started falling in late 2012. He also had a large subscriber base, and those clients reportedly lost at least another $92 million following his advice. The reason Zaky's fund crashed? According to the story in Fortune, it sounds like the fund used the maximum leverage possible to get into short-term bullish call spreads.

The problem here has nothing to do with options and everything to do with extreme leverage. Zaky apparently had customers and clients buying vertical call spreads in such large size that it only took two months of those spreads expiring worthless to wipe out all of their capital: "I can distinctly remember his urging members to deploy 'any spare cash' they had into the $655-$705 call spread."