Did Niederhoffer Lie To Baron?

Quote from Pa(b)st Prime:

Niederhoffer lost 30% in May/06 on an SPX decline of 80pts. What effect do you think an Index break of 180 points had on his positions?
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It is on RECORD that he was down -6%, YTD by the end of May.

Now let's work with my assumption that for every 1% SPX move his position moved 5%, up or down. The SPX bottomed at -4% last year, so the biggest DD would have been -20% for his position. (It is possible it didn't go in a linear fashion, but I am oversimplifying.)

Again, it is a question of when the investors pulled their money. Most likely not at the very bottom, but even if so, a 20% loss is not blowing out, specially that the rest of the position if left unchanged made it back by the end of the year nicely.

So that would explain why there is no big story. Confidence lost, end of story...

P.S.: (If somebody was wondering, where I got the 1:5 leverage)

--- Matador: SPX:

2004 ---- 50% 9%
2005 ---- 56% 5%
2006 April 30% 6%
 
Where I got my numbers: (August, 2006)

http://www.andongkim.com/articles/2006/08/niederhoffer_fundmay.htm

"Putting a positive spin on things, Niederhoffer, 62, told Trader monthly, via email: "The loss we had in May still left us almost unchanged on the year, and given our record, it was quit salubrious."

"The hedge-fund firm he runs, Manchester Trading LLC, took a beating in May, when stock prices swooned," the WSJ said. "That month alone, the fund lost about $100 million, or almost 30% of its assets. There was speculation -- though it proved to be unfounded -- that he might have to close his firm."

"I had a bad May. I made some mistakes, that's regrettable," said Niederhoffer. "But one sparrow does not make a spring, and nor does one bad month."

Through the end of June, his largest fund, Matador Fund with about $250 million, continued to lose money, down 12 percent on the year.

Trader Monthly said that the Matador Fund was as of June 1st, down by only 6 percent for the year..

By the end of May this year, his funds were up almost 30 percent, which "encouraged him to become more aggressive, he acknowledges," said the WSJ."

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So according to this article, until June the lowest point was -12% YTD, which agrees with my working assumption.
 
If Vic took the effort to call Baron, why couldn't he at the same time give his recent performance?
All the speculations would be gone as well as the negative publicity.

But this would only be true if the performance was good or a reasonable loss (even the best CTA has losing months, that's no shame). If he really lost huge money it is understandable that he doesn't give any information at all.

The only person that is responsible for the gossip, and the only person that can stop the gossip is Vic.
Why doesn't he take action to do so?

:confused:
 
Quote from spike500:

If Vic took the effort to call Baron, why couldn't he at the same time give his recent performance?
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Because there is no more Matador, thus no performance? He is trading now his own money, and why would he discuss his own financials to anyone???

I think the story is much simpler than people think...

But hey, I am just playing Lt. Columbo here....Now, where is my raincoat?
 
You're making a ridiculous extrapolation in assessing the vulnerability of a premium writing strategy to market declines.

The losses on short puts grow exponentially on the break. Obviously if I short a put with a delta of -.10 at the beginnig of a correction my position has a beta much smaller than the corresponding move in the index. Equally obvious is the fact that as the break furthers in magnitude my short delta's increase. Not to mention the tremendous up tick in the volatility component of the short put.


A position diagram might look like this:
SPX -5%, Vic down marginally or even flat
SPX -10%, Vic -30%
SPX- 15%, Vic broke

Quote from Pekelo:

It is on RECORD that he was down -6%, YTD by the end of May.

Now let's work with my assumption that for every 1% SPX move his position moved 5%, up or down. The SPX bottomed at -4% last year, so the biggest DD would have been -20% for his position. (It is possible it didn't go in a linear fashion, but I am oversimplifying.)

Again, it is a question of when the investors pulled their money. Most likely not at the very bottom, but even if so, a 20% loss is not blowing out, specially that the rest of the position if left unchanged made it back by the end of the year nicely.

So that would explain why there is no big story. Confidence lost, end of story...

P.S.: (If somebody was wondering, where I got the 1:5 leverage)

--- Matador: SPX:

2004 ---- 50% 9%
2005 ---- 56% 5%
2006 April 30% 6%
More...
 
Quote from Pa(b)st Prime:

A position diagram might look like this:
SPX -5%, Vic down marginally or even flat
SPX -10%, Vic -30%
SPX- 15%, Vic broke
More...

I agree with you. Nevertheless, if you look at the SPX's last year performance, the biggest top-bottom move was 10%, so he might very well survived it with a big, but not lifethreatening DD. And this is actually backed up by the article above stating that he was only down -12% by June's end....

Otherwise why is it so hard to believe that he simply just lost the investors' confidence??

Now until YOU get your informants' story straight, I bet that my GUESS is closer to the truth than anything here posted...
 
Actually someone told me Vic's trading losses this year were a half billion.

My original source told me Vic was forced out the week of the discount rate cut. To verify this information I checked the volume in the far OTM puts in the back months. If you peruse most any other day you'll see that these strikes i.e. Dec/08 1100, don't trade. Ever. However on the day's in question thousands of contracts traded.

Pay special attention to the dramatic drop in open interest on August 8th in the Dec 1100 and 1000 puts. Obviously that's Vic puking.
http://www.cme.com/daily_bulletin/Section50_S_And_P_500_Put_Options_2007154.pdf

http://www.cme.com/daily_bulletin/Section50_S_And_P_500_Put_Options_2007153.pdf
Quote from Pekelo:

I agree with you. Nevertheless, if you look at the SPX's last year performance, the biggest top-bottom move was 10%, so he might very well survived it with a big, but not lifethreatening DD. And this is actually backed up by the article above stating that he was only down -12% by June's end....

Otherwise why is it so hard to believe that he simply just lost the investors' confidence??

Now until YOU get your informants' story straight, I bet that my GUESS is closer to the truth than anything here posted...
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Quote from Pa(b)st Prime:


Pay special attention to the dramatic drop in open interest on August 8th in the Dec 1100 and 1000 puts.
More...
Good detective work, but how do you know that was Vic. He wasn't the only one unwinding on the 8th. Over the 7th, 8th, and 9th, the typical stat arb fund experienced about a 15 sigma hit. The short OTM index puts strat was used by some of these funds as a putatively low risk yield enhancer. How do you know that the drop was not due to these funds reducing exposure?
 
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