Allianz Covid Blow-Up and Risk Management

C

caroy

https://us.allianzgi.com/en-us/stra...ments/structured-alpha-march-2020-performance

Above a link to Allianz own report on risk management.

Context the fund shorted puts on SP and calls on VX premium collector. Did some hedging with other puts for blow up to the downside. Hedge didn't work.

Why do premium short sellers on SP puts just sell futures at their strike + premium. It would cap the downside risk immediately? Granted they futures could whipsaw back and forth but if your initial strategy is to roll down and reestablish and this keeps losing why not just sell the equivalent amount of futures to offset any future losses?

Could Cordier not have done this as well and other premium blowout stories?

I must be missing something.
 
Not sure if you're missing anything, except that it's very difficult to design proper hedging, or predict how options will behave. I was losing this week on AMZN leap puts even while AMZN was dropping.
Selling futures may not offer much advantage, while risking losing more when the market reverses. While they could've bought dozens of OTM puts for each future contract (or naked put) at risk, thus being well hedged under ideal circumstances. Things just didn't work the way they planned, including potential mistakes and miscalculations on their end.
And selling futures wasn't even related to the strategy they used. They're already getting sued for not closely following their own strategy, so suddenly switching to a different strategy would be inexcusable.
 
caroy said:
https://us.allianzgi.com/en-us/stra...ments/structured-alpha-march-2020-performance

Above a link to Allianz own report on risk management.

Context the fund shorted puts on SP and calls on VX premium collector. Did some hedging with other puts for blow up to the downside. Hedge didn't work.

Why do premium short sellers on SP puts just sell futures at their strike + premium. It would cap the downside risk immediately? Granted they futures could whipsaw back and forth but if your initial strategy is to roll down and reestablish and this keeps losing why not just sell the equivalent amount of futures to offset any future losses?

Could Cordier not have done this as well and other premium blowout stories?

I must be missing something.
More...

When you are short vol in a situation like COVID, you can never be short enough futures when its selling off and you can never be long enough futures when it dead cat bounces.
 
guru said:
Not sure if you're missing anything, except that it's very difficult to design proper hedging, or predict how options will behave. I was losing this week on AMZN leap puts even while AMZN was dropping.
Selling futures may not offer much advantage, while risking losing more when the market reverses. While they could've bought dozens of OTM puts for each future contract (or naked put) at risk, thus being well hedged under ideal circumstances. Things just didn't work the way they planned, including potential mistakes and miscalculations on their end.
And selling futures wasn't even related to the strategy they used. They're already getting sued for not closely following their own strategy, so suddenly switching to a different strategy would be inexcusable.
More...

Good points. I suppose they are bound by their listed strategies.
 
newwurldmn said:
When you are short vol in a situation like COVID, you can never be short enough futures when its selling off and you can never be long enough futures when it dead cat bounces.
More...
Makes sense. I guess in theory it would work but theory and reality are two different things.
 
caroy said:
https://us.allianzgi.com/en-us/stra...ments/structured-alpha-march-2020-performance

Above a link to Allianz own report on risk management.

Context the fund shorted puts on SP and calls on VX premium collector. Did some hedging with other puts for blow up to the downside. Hedge didn't work.

Why do premium short sellers on SP puts just sell futures at their strike + premium. It would cap the downside risk immediately? Granted they futures could whipsaw back and forth but if your initial strategy is to roll down and reestablish and this keeps losing why not just sell the equivalent amount of futures to offset any future losses?

Could Cordier not have done this as well and other premium blowout stories?

I must be missing something.
More...

Cordier did. Besides shorting the calls, he also bought calls, way way way OTM calls for hedging or as those "professionals" call it, for "risk management" purposes. LOL
 
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