Victor Niederhoffer was a star trader who ran a very successful and well-established hedge fund. One strategy of the fund involved writing large quantities of uncovered (i.e., 'naked') deep out-of-the-money put options on the S&P 500 index and collecting the option premium. However, the strategy was undone in October 1997, and the fund's positions are liquidated by brokers. Which of the following statements correctly describe the reason for the failure of Niederhoffer's hedge fund?