LJM Preservation and Growth Fund, collapsed by 82 percent! (WTF?)

[newwurldmn]

I agree. The monster in the room is that these guys were trading way too big to compensate for a sub 10 VIX to offer attractive returns. Selling vol the last couple of years was lucrative but it should not have been as lucrative as some of these funds have shown. The market has been forcing vol sellers to accept lower and lower yields. This of course was not acceptable to these funds so they sized up way beyond what should have been appropriate.

Nobody should have been blown out by a move up to 35 in the VIX. We use to see two to three 10% corrections a year and the avg mean level of the VIX for over a decade was close to 20! This is simply a case of juicing returns to satisfy investors.

Even in that "juicing" these guys were long the equivalent of 100percent xiv. That's ludicrous. If they were running that kind of risk they should have made at least 100percent last year.

Perhaps they were selling tinies in massive notional compared to their equity, which exploded in value as the vix rallied. But not prudent short vol biased trader would do that.

I can only explain it as gross negligence.

 

[RedDuke]

I agree. The monster in the room is that these guys were trading way too big to compensate for a sub 10 VIX to offer attractive returns. Selling vol the last couple of years was lucrative but it should not have been as lucrative as some of these funds have shown. The market has been forcing vol sellers to accept lower and lower yields. This of course was not acceptable to these funds so they sized up way beyond what should have been appropriate.

Nobody should have been blown out by a move up to 35 in the VIX. We use to see two to three 10% corrections a year and the avg mean level of the VIX for over a decade was close to 20! This is simply a case of juicing returns to satisfy investors.

Mav,

You have been around for a long while, but have you seen prices Monday night to Tuesday morning ???? They were absolutely insane. On Friday when we hit lowest 5 point away from Tuesday night, option prices where moon away from what went went on Tuesday night. No one EVER saw anything like this. Think about it, I was able to sell S&P put option expiring in 4 days, 1000 points away from strike at 9 points. This was utter madness.

 

[samuel11]

Mav,

You have been around for a long while, but have you seen prices Monday night to Tuesday morning ???? They were absolutely insane. On Friday when we hit lowest 5 point away from Tuesday night, option prices where moon away from what went went on Tuesday night. No one EVER saw anything like this. Think about it, I was able to sell S&P put option expiring in 4 days, 1000 points away from strike at 9 points. This was utter madness.

I'm too young to compare against many points in the past, but what I observed on Monday night looked insane. Some of the puts maturing 2 weeks later that I bought for $2 before the super bowl were worth $80 just 24 hrs later

 

[ajacobson]

https://www.reuters.com/article/us-...und-that-lost-most-of-its-value-idUSKBN1FT2XL

 

[beefcaketrade]

Of course, the fund industry is all about minimal drawdowns, below average returns and as high fees as possible. The fact that most funds put more money into marketing than they do research, nothing else needs to be said. The fact that people still fall for that shit is ludicrous.

How do you figure they spend more on marketing than research?

What does research constitute? Surely it includes salaries of all the analysts and PMs a fund hires to manage a portfolio for a fund. Salaries and bonuses alone are likely higher than any marketing cost a fund will spend. The marketing all lies in going to events and schmoozing rich guys to give them money.

 

[beefcaketrade]

I'm too young to compare against many points in the past, but what I observed on Monday night looked insane. Some of the puts maturing 2 weeks later that I bought for $2 before the super bowl were worth $80 just 24 hrs later

Yeah.

Take the 2500 strike ES put expiring Feb 09 that I was watching. I recalled it went from like $2 on Sunday to $100+ by the time it plunged between monday-tuesday. That's insane. You could sell puts down to 1000 on the S&P and still get decent premium. It was that crazy.

 

[RedDuke]

I'm too young to compare against many points in the past, but what I observed on Monday night looked insane. Some of the puts maturing 2 weeks later that I bought for $2 before the super bowl were worth $80 just 24 hrs later

Exactly.

 

[RedDuke]

Yeah.

Take the 2500 strike ES put expiring Feb 09 that I was watching. I recalled it went from like $2 on Sunday to $100+ by the time it plunged between monday-tuesday. That's insane. You could sell puts down to 1000 on the S&P and still get decent premium. It was that crazy.

This was madness indeed. That is why LJM with all their experience could do nothing. Up until that night it was basically impossible.

And s@p move in points was not that bad as we saw on Friday. About the same low, but options were priced normally and sagnificay less than Monday to Tuesday.

 

[KevinD]

If you saw the prices Monday to Tuesday night you would be in shock. S&P 500 Puts that expired yesterday 1000 points away from the market where trading around 9. Options price wise, this was the worst ever event.

This was THE BLACK SWAN of the black swans. Even tough market decline was not too horrible option prices were like nothing anyone saw. Not even in 2008.

Another amazing/weird thing about that night was that the spead was “tight” like within 5 points. During August 2015 it was as wide as 20 points.

I believe that Monday night's option prices were very similar to the sunday night in August 2015. Granted, that period of time was a lot of back and forth (up/down) in the weeks/months prior. This mini-collapse happened after more than a year of literally a handful of modest down days prior to it.

 

[KevinD]

Take a look at Apr 7-14, 2000. I remember trading at that time and it was very similar to the past week, a complete reversal of a spike up parabola. Options markets were way better in those days, there was more liquidity and spreads were not a mile wide. But that was also a 10-12% decline in a matter of days.

There were also some truly insane days in the summer/fall 1998, the collapse after 9/11, a mini crash in the fall of 1997, plenty of examples. The main difference being that traders in that era were not nearly as complacent as they have become with the past 9 years of quant easing and volatility compression.