Karen the Supertrader - TastyTrade Hybrid Experiment

[conduit]

are you completely ignorant or blind? That woman committed some serious accounting fraud and deceived and cheated her investors and regulators and reporting agencies. Why do you think the SEC is investigating? Can we be real for a moment?

It is sound as long as you are aware of the risks and possibilities (of blowing in every 5-6 years). In the last 10 years only one year, 2008 would have caused a loss for this strategy. If you don't believe the backtest, how about the forward test with real money? For the last time, the Yahoo boys did 18% last year when volatility was MUCH HIGHER than in 2014. So all things being equal, she should have made an easy 15-20% in 2014. (according to her interview, she was already up 11% I think by August) The only explanation is that she over leveraged.

By the way one of the SEC complaint says she was down 44 mil at the beginning of this year. If she had 200 mill AUM that is less than a 25% DD (in HF world aka Tuesday), not really a blow up. Could have made it back in 2 years. I think she started the carry over of losses because of the high water mark stipulation of the fund, she wouldn't get paid until they make the loss back. She didn't want to work for free for 2 years... Probably she would have to pay the workers out of her own pocket.

But anyway, if you don't believe the possible returns in a non-remarkable year, just follow Bobby running this journal.

 

[DTB2]

I think as this unravels we will find there was very little profit at any point in her story. New money paying old monies. The pressure to try and keep it going resulted in her being where she is right now, in a lot of hot water.

Bbbbut she seemed so nice.

 

[F_488]

All these posts about what Karen has or hasn't done would be better posted in the Schadenfreude Warning thread. Bobby has already said his system is a hybrid experiment. These negative posts are disrupting his Journal.

 

[El OchoCinco]

Bobby,

Just go back and look at my two first posts where I mention some advice. The truest risk of this strategy is simply doing it blindly every month without taking into consideration market events. For example, we have a very jumpy market ahead of FED meeting and the market has looked like it could sell off hard. That means you have to adapt rather than simply picking arbitrary delta level and selling more puts than calls. Skipping a side of the market or being more cautious with reduced size is almost as safe as simply hedging a bit or sitting on your hands until market direction is reconfirmed. One common newbie mistake in any trading strat is thinking you have to be in at all times to make money. What matters is your % return at the end of the year not month to month.

Lot of uncertainty coming which could lead to some wild swings. Hardest thing I had to do is sit out a call or put trade or a month when I was selling premium and wait until things settled down.

 

[conduit]

Collecting premium via ratio spreads only makes sense when one is a superior forecaster of directional markets. You cant predict low volatility. I have seen way too many professional options traders go belly up at my banks and hedge funds selling wings. It's a horrible way of trading because the inevitable will happen at some point.

Bobby,

Just go back and look at my two first posts where I mention some advice. The truest risk of this strategy is simply doing it blindly every month without taking into consideration market events. For example, we have a very jumpy market ahead of FED meeting and the market has looked like it could sell off hard. That means you have to adapt rather than simply picking arbitrary delta level and selling more puts than calls. Skipping a side of the market or being more cautious with reduced size is almost as safe as simply hedging a bit or sitting on your hands until market direction is reconfirmed. One common newbie mistake in any trading strat is thinking you have to be in at all times to make money. What matters is your % return at the end of the year not month to month.

Lot of uncertainty coming which could lead to some wild swings. Hardest thing I had to do is sit out a call or put trade or a month when I was selling premium and wait until things settled down.

 

[Pekelo]

All these posts about what Karen has or hasn't done would be better posted in the Schadenfreude Warning thread. Bobby has already said his system is a hybrid experiment. These negative posts are disrupting his Journal.

Generally I would agree with you, but this thread has a more positive approach than the others and let's face it, Bobby's journal itself would be very boring so unless he asks me otherwise, I will post here my observations. Also I just keep putting on Ignore the "I told you so" guys who don't contribute to the discussion.

I think there are at least 4 separate things involved in this case that complicate the understanding of the case for most readers:

1. The core strategy and its risks and rewards. I stand by my observation that out of the last 10 years it would have lost money only in 2008.

2. Over leveraging the strategy what most likely caused the losses in an otherwise non-remarkable year. In other words, greed.

3. The fee and incentive (high water mark) structure of her fund, that caused her to not take a loss and starting the scheme trades.

4. Certain "last comers take all the loss" feature of the funds. Its legality depends on disclosure or lack of it. It has a ponzi like feeling to it.

5. Sending profits from the funds to the charity fund, and circulating that money back...

So all these issues should be looked at separately first before final judgment is made.

 

[El OchoCinco]

Collecting premium via ratio spreads only makes sense when one is a superior forecaster of directional markets. You cant predict low volatility. I have seen way too many professional options traders go belly up at my banks and hedge funds selling wings. It's a horrible way of trading because the inevitable will happen at some point.

I agree in general but I dont think the OP is doing ratio spreads at all. I don't think any of this discussion was on ratio spreads which can be done for net debits or net credits or very limited risk looking large moves.

 

[conduit]

ah? I think the whole approach is on ratio spreads/strangles...

I agree in general but I dont think the OP is doing ratio spreads at all. I don't think any of this discussion was on ratio spreads which can be done for net debits or net credits or very limited risk looking large moves.

 

[El OchoCinco]

Bobby,

Just go back and look at my two first posts where I mention some advice. The truest risk of this strategy is simply doing it blindly every month without taking into consideration market events. For example, we have a very jumpy market ahead of FED meeting and the market has looked like it could sell off hard. That means you have to adapt rather than simply picking arbitrary delta level and selling more puts than calls. Skipping a side of the market or being more cautious with reduced size is almost as safe as simply hedging a bit or sitting on your hands until market direction is reconfirmed. One common newbie mistake in any trading strat is thinking you have to be in at all times to make money. What matters is your % return at the end of the year not month to month.

Lot of uncertainty coming which could lead to some wild swings. Hardest thing I had to do is sit out a call or put trade or a month when I was selling premium and wait until things settled down.

Oh and I should add my personal opinion that this strategy is not a good long term strategy to make money and grow and account. I did it for a few years when VIX was between 12 and 20 and moved on when the market began to have big swings. It might good for scalping some income occasionally but still not the best method to do so and eventually all pure premiums sellers get blown out or lose a big chunk of their money and you realize you wasted a certain number of years with a feeling of invincibility. I have done the occasional short straddle when conditions present themselves but that is not very often (indexes).

If you feel confident in your ability to pick non-direction as your direction then maybe look at mixing in some butterflies or other strats to balance the risk.

Karen is just another beginner who thought she found the Holy Grail (she was not a trader before she started her hedge fund) and went large and then got bit by the volatility of the market like we all would expect. her fraud is not surprising because she needed to cover up the losses most of us know are inevitable from this strategy. People ask if this is bad why are so many hedge funds doing it...well they do it until they blow up and then the next batch takes their place or they change strats. that alone is telling..

good luck!

 

[El OchoCinco]

ah? I think the whole approach is on ratio spreads/strangles...

It is selling short calls and puts on the indexes whereas spreads involve a long and short side and trader might sell more puts than calls but not sure what ratio if any. These are pure naked trades I believe.