Don't think so, consider the potential DD of your strategy vs the potential return.
Karen the Supertrader - TastyTrade Hybrid Experiment
- Thread starter Sweet Bobby
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You're right. I'm sure they would much prefer to be down money on the year. Gotcha! Perfect sense!
Sometime you would rather have SMALL drawdown from time to time than a lot of SMALL wins with one loss trade that will blowup your account.
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Bobby, they probably would not want to be up on the year fully margined out on short gamma. I'm sure you understand that. The professional managers only care about "risk adjusted" returns, not absolute returns. You don't need a money manager to simply pile on risk or beta. You invest in a hedge fund to lower risk. People who invest in hedge funds are "already rich". Now they want to protect it. Do you follow? As traders, the only metric you should be focusing on is risk adjusted returns.
Forget Karen - you guys should be doing what this guy does. He makes 3% a month on a strategy that's similar but slightly refined.
https://www.tastytrade.com/tt/shows...rod-tastytrades-newest-rising-star-08-04-2016
https://www.tastytrade.com/tt/shows...rod-tastytrades-newest-rising-star-08-04-2016
He learnt he was too big in 2015 and yet one year later he is still too big.
Wonder how he paid that mortgage with a 40% drawdown.
Here's a couple of take aways I have.
I think Bobby will land somewhere between a 12 and 15% annualized return three years down the road once he has more data. It is a profitable strategy since you're taking unlimited risk for limited gain - just like an insurance company operates with 8-10% margin.
Having said that all the other stuff is BS. If you do 30 or 45 days to expiration, if you do 20 10 or 40 delta options, none of this really matters, this is curve fitted and some things will perform better over different time periods. The only real dial you have in this strategy is leverage. The more you risk the more you make the higher the blow out risk. This guy has 40% draw downs on a 50% return (pretty close to 1:1) - based on that I expect Bobby to hit about 15% draw downs if things go sour. Full account blow ups are not very likely imo - it all comes back and as long as you can infuse more capital (temporarily) you'll be fine - however it may take a couple of years to dig yourself back out of a serious draw down.
Now tastytrade has to hype the next Karen (or rising star) as they need to make money too - marketing a con fund doesn't work well - so you can't blame them for finding new "success". It is unfortunate that they don't put more disclaimers around the interviews - they know very well the risk and success parameters - but the whole idea is to push their story,approach so why would they - it's in everyones best interest to be a little skeptical when they hear 50%/year gains.
I think Bobby will land somewhere between a 12 and 15% annualized return three years down the road once he has more data. It is a profitable strategy since you're taking unlimited risk for limited gain - just like an insurance company operates with 8-10% margin.
Having said that all the other stuff is BS. If you do 30 or 45 days to expiration, if you do 20 10 or 40 delta options, none of this really matters, this is curve fitted and some things will perform better over different time periods. The only real dial you have in this strategy is leverage. The more you risk the more you make the higher the blow out risk. This guy has 40% draw downs on a 50% return (pretty close to 1:1) - based on that I expect Bobby to hit about 15% draw downs if things go sour. Full account blow ups are not very likely imo - it all comes back and as long as you can infuse more capital (temporarily) you'll be fine - however it may take a couple of years to dig yourself back out of a serious draw down.
Now tastytrade has to hype the next Karen (or rising star) as they need to make money too - marketing a con fund doesn't work well - so you can't blame them for finding new "success". It is unfortunate that they don't put more disclaimers around the interviews - they know very well the risk and success parameters - but the whole idea is to push their story,approach so why would they - it's in everyones best interest to be a little skeptical when they hear 50%/year gains.
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Rising Star thats funny. I love the part of the interview were he says " I am too Risky at the moment" He had a 40% drawdown in Aug 2015 and didnt learn anything from this painful experience and is still trading the same way. No wonder Karen was named the Super Trader.
This is completely false and it demonstrates a complete lack of respect for the non linear nature of gamma. The returns are not asymmetric nor can they be by the very definition of what he is doing. In other words, for every basis point of return that gets added via leverage, the loss increases at an increasing rate (convexity). Let me just say it's a good thing Bobby is in grad school but I would hope he would be learning about this stuff. Maybe he is studying international relations, who knows.
Do you know what sort of capital reserves insurance companies normally hold, in order to enable them to produce these margins you have mentioned?
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