The trading strategy Bernard Madoff said he used to make huge profits for investors 17 years running would have required trading options 10 times those available on US exchanges, it was claimed today.

Madoff invested in S&P 100 index companies and used options to limit losses. To deliver the low double-digit average returns Madoff claimed, with no down years since 1990, would have required massive bets.

Options traders said it should have been obvious the firm was a fraud.

Al Greenberg, head Chicago Board Options Exchange floor trader at BNY Convergex, said: "If he traded half the amount of options he claims he was, it would have been staggering when he came into the market."

Jim Vos, who runs New York hedge fund adviser Aksia, said: "The options market could never come close to handling the trades that this guy said he was doing. There isn't enough liquidity."

More documents emerged showing the Securities and Exchange Commission was warned years ago about Madoff, receiving a report dated November 2005 claiming Madoff was operating "the world's largest Ponzi Scheme".

The report raised concerns about how Madoff operated, the nature of the commissions he charged and returns he claimed to deliver.

"Far better that the SEC is proactive in shutting down a Ponzi Scheme of this size rather than reactive," the author wrote. "I have spoken to the heads of various Wall Street equity derivatives trading desks and every single one of the senior managers I spoke with told me that Bernie Madoff was a fraud."