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

samuel11 said:
Were your positions naked or limited? That makes a big difference with implied volatilities.

I meant to say you can't hedge the implied vol with delta, and sell futures fast enough because it is too jumpy. Sorry for the confusion.
More...
I never ever do naked positions.

Yes, it makes a big difference.
 
samuel11 said:
Which strikes did you assume? I'm wondering if most of their loss is due to convexity, as RedDuke mentioned the "insane" prices we both observed between Feb 5 and 6.

It is one thing to sell a put for $100 and see it go to $400, but it is a little different if you sell 50 puts for $2 and they go to $50 and you can't delta hedge on the way down, which I believe is something they wrote in their recent letter. As spot moves down, these $2 puts have more and more vega and your delta hedge won't help much.

My guess is that they had excessive leverage for implied vols they did not anticipate.
More...

That's my guess as well.

If they were only trading VIX, their performance in 2017 would equate to a position of 6% long XIV (which tripled in value to earn approx. 20%). To have the loss they did in 2018 they would have then had to have 80% XIV.

Either they changed their position drastically or they had a different risk. My guess is that they were short a lot of tails and perhaps long ATM to flatten or get long the spot gamma. The small move in the SPX didn't allow the ATM to earn while the rally in VIX caused (or was caused by) a rally in the DOTM puts which caused substantial marked to market pain. They were probably buying in the post market and that's where the insanity came from. Their book is vega flat and gamma flat but short a lot of vol gamma. If I'm right, if they were able to hold on for a week, they would have survived.

It's still inexcusable in my opinion. But it seems more and more funds are doing stupid things like the fund last year that was trading 1x4 callspreads so that they were long that market but hedged for a down move.
 
samuel11 said:
I meant to say you can't hedge the implied vol with delta, and sell futures fast enough because it is too jumpy. Sorry for the confusion.
More...

You'll never have enough delta on the downside and you will have too much on the upside.
 
RedDuke said:
What do you mean? Stats there are for 2013 and later. There is only 1 mention of 2008 that they were active back then.
More...
You mentioned that they survived 2008 - what I'm saying is that this particular fund was launched in 2013, long after 2008.
 
You must log in or register to reply here.
Back
Top