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

[KevinD]

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.

If I remember correctly the ES 2200p (exp 02-09) did spike up to $60 Monday night, from roughly $1.50 intra-day. So definitely a panic episode there right as it looked like markets were headed for limit down (2512 or so).

Edit: ES 2200p (exp 02-16-18) 0.40 intra-day to $71.50 Monday night. bid/offers a mile wide thru the next day.

 

[RedDuke]

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.

Out of those events I can only speak about 9-11, prices were no where near as bad.

 

[RedDuke]

If I remember correctly the ES 2200p (exp 02-09) did spike up to $60 Monday night, from roughly $1.50 intra-day. So definitely a panic episode there right as it looked like markets were headed for limit down (2512 or so).

Edit: ES 2200p (exp 02-16-18) 0.40 intra-day to $71.50 Monday night. bid/offers a mile wide thru the next day.

Yep, and modeling something like this would be a stroke of genuis.

 

[KevinD]

Out of those events I can only speak about 9-11, prices were no where near as bad.

I agree with you. Prices/spreads were also tight even during the mini-meltdown in April 2000 with RAES, etc. Monday/Tuesday, there was hardly a functioning options market, which has long been speculated would be the case after years of one-way liquidity/passive investing flows, etc.

 

[newwurldmn]

Yep, and modeling something like this would be a stroke of genuis.

The move was extraordinary only in that vol moved faster relative to spx than most models would have predicted. But this was not out of the realm of what a professional firm should be testing for.

Virtually every professional vol trader will be shocking their book for the "overnight gap event." Especially a volatility seller.


Either they were doing it and ignoring that risk (perhaps dismissing it as low probability) or they weren't doing it.

If the first case then that's gross negligence. If the second then gross incompetence.

It's even more shocking if you look at their past performance. Whatever they were doing in 2008 clearly they weren't doing in 2018. I get the sense whatever they were doing in 2017, they weren't doing in 2018.

 

[RedDuke]

Looks like they are done. Just google LJMAX symbol.

 

[truetype]

https://money.usnews.com/investing/...st-of-its-value-shuts-doors-to-new-investment
U.S. Fund That Lost Most of Its Value Shuts Doors to New Investment

 

[TheDudeofLife]

If I remember correctly the ES 2200p (exp 02-09) did spike up to $60 Monday night, from roughly $1.50 intra-day. So definitely a panic episode there right as it looked like markets were headed for limit down (2512 or so).

Edit: ES 2200p (exp 02-16-18) 0.40 intra-day to $71.50 Monday night. bid/offers a mile wide thru the next day.

I calculated that with ES at 2519, with 10 days to expiration a price of 71.500 for this put would be a 122 % implied vol

 

[prc117f]

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

Yup looks like the name is gonna get them in big trouble.

lost most of its value despite touting its ability “to deliver solid returns while maintaining risk parameters” in its most recent annual report to shareholders.

“In truth, however, [the fund] was not focused on capital preservation and left investors exposed to an unacceptably high risk of catastrophic losses,” the complaint said.

 

[prc117f]

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.

yeah I made about 8K this last few days some premiums were inflated. (I did hedge of course just in case). things are slowly getting back to normal. I do hope we keep VIX over 20s for the next few months.

I did lose some money on a fat finger trade, My first fat finger trade ever and it cost me 600 dollars