Schadenfreude Warning: "Karen the Supertrader"

ironchef said:
I understood all of that. What I was trying to understand was what some of you said she could avoid the big losses, or recovered the 50% losses by doing something to her trades/portfolio and I wanted to know what that something was, in general terms.

Anyway, thanks for taking the time to answer and I will leave this topic for now.

Regards,
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After she incurred the 50% loss there was nothing she could have done. She would not have enough capital to roll out to the next month and create enough new positions to cover the loss.

She should have tried to avoid the loss in the first place by either trading less positions & trading spreads and having real hedges in place.

The market has dropped approx 50% twice in the past 16 years. If your trading strategy can't deal with drops that big you should not sell options. Tail risk is actually much, much higher than the option models predict.

Also if your trading system can't generate over 7% a year stop trading and just put your money in a passive fund that tracks the S&P and you will have much less stress as well
 
DallasCowboysFan said:
I'd bet on it. The SEC didn't create 34 pages of legalese, document 94 Facts of wrongdoing, define 8 Felony Counts of criminal behavior and request a jury trial just to kill time.

It doesn't matter what went through her mind, she is still guilty. She lost money, she took commissions she did not earn, she produced fraudulent statements and gave money to poor people that did not belong to her. While thumping her chest and saying....'look at me and how special I am'.

That is a lot of people involved in an investigation if they don't expect a guilty verdict..

http://www.sec.gov/litigation/litreleases/2016/lr23551.htm

https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf
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As much as I'd like to agree with you, if you review the 2015 enforcement results (see link below), Karen is not such a large fish when compared to other cases.

https://www.sec.gov/news/pressrelease/2015-245.html

"In the fiscal year that ended in September, the SEC filed 807 enforcement actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties."

Let's take Karen's "ill-gotten gains" as a percentage of the SEC's total 2015 amount received in disgorgement and penalties.

According to the complaint, "Hope collected over $6 million in incentive fees, most which would not have been paid in the absence of the "Scheme Trades.""

So if the SEC collected the full $6 million worth of "ill-gotten gains" it would represent just 1% of what they collected in total during 2015.

Section 17(a)(1) of the Securities Act is apparently more severe than the remaining accusations against her, because it involves actions of scienter, or intent.

It's been noted that the spreadsheet will probably serve as one of the prime pieces of evidence to prove she acted with intent in order to collect the fees.

Perhaps the only realistic defense is in paragraph 39 of the complaint where a portion of the PPM stated that "incentive allocations may be paid by the Fund even though the fund is experiencing unrealized trading losses." It also states..."it is unlikely that the Investment Adviser will be able to defer realization of losses on positions for any extended periods of time."

I doubt paragraph 39 gets her a pass. However, I don't see it going to a grand jury for a criminal prosecution. There is one part of the SEC complaint I read that seems quite damaging. It's where it says she "made use of the means or instrumentalities of interstate commerce, of the mails, and/or of the means and instruments of transportation or communication in interstate commerce."

Maybe that gets her noticed for a wire fraud/mail fraud charge by the feds? Who knows the outcome. It will be interesting to see how it plays out.

Ok, since you want a bet, let's do it. I'll bet she will settle and pay fines, disgorge a large chunk of her fees, and will not be allowed to register ever again. If she's already made millions prior to engaging in the "Scheme Trades" then it's likely she makes them an offer before the jury trial is scheduled, and hence no jury verdict.

Besides, it was "Investor A" described in the SEC complaint who took a large chunk of the losses. "In the summer of 2015, Hope caused the HDB Fund to realize the losses." "This resulted in more than a $30 million decrease in the capital account of Investor A."

YET, then "Investor A" in March 2016 puts $65 million of his remaining money into the HI Fund! You'd have to be crazy to lose $30 million with an advisor and STILL trust the advisor with another $65 million to manage. Maybe it's her lover, and indeed "Investor A" is crazy...crazy in love, lol!
 
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I think you are into it, but some of your facts are just plain wrong:

Chubbly said:
1.Portfolio margin is like a nuclear weapon,
2.Funny when a 'hedge' fund doesn't hedge
3.She never backtested.
4. A 10% in the market happens on average 1x/year.
5.We just didn't have any 2011-2014 then in since Oct 2014 we have had 3 drops.
6.She overtraded because she was chasing returns because of greed, plain and simple.
7. Then she just had scheming trades since Oct 14 booking no real gains.
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1. She has been using portfolio margin for the last 5 years at least, so why 2014 was the year screwing her?
2. I think it was actually the call side that did more of the damage. The market dropped only 9% in 5 days (also happened in previous years and in 2015), she increased the call selling on the other side, then the market whipsawed and recovered in just 7 days.
3. She has been using the same strategy since 2008. If 2008 wasn't a good test I don't know what year is. The strategy did survive 2008, (although not stated with what return) so that was as good of "backtest" as any. Now it is possible she used more leverage in 2014, but the market move was way less than in 2008.
4. Exactly. So how come she made money in the previous years and people using the same strategy and portfolio margin made 18% in 2015?
5. That is not true. 2009 had a 20% drop. 2010 had a 12% and 10% drops.

2011 had an 18% drop, and she made money. 2012 had two 8% drops, she made money. 2015 had a 12% drop, the Yahoo boys made money.
6. According to the now removed TT Youtube video in 2014 August, her fund was already up 10% by August, so there was really no reason to over leverage more than usual.
7. This is probably correct. After the loss she didn't have enough money to actually trying to make it back because the scheme trades were tying up the money.

So you are generally right that it was over leveraging, that caused her loss, but it wasn't the drop in 2014, because similar and bigger drops before and after didn't cause the same loss. I think it was the whipsaw nature of the market in 2014 and she selling more than usual calls that was different from other years.

But hey, I could be wrong. And before any idiot chimes in, I just want to understand what was different about 2014, when other years with bigger moves were profitable using the same strategy....
 
Pekelo said:
I think you are into it, but some of your facts are just plain wrong:



1. She has been using portfolio margin for the last 5 years at least, so why 2014 was the year screwing her?
2. I think it was actually the call side that did more of the damage. The market dropped only 9% in 5 days (also happened in previous years and in 2015), she increased the call selling on the other side, then the market whipsawed and recovered in just 7 days.
3. She has been using the same strategy since 2008. If 2008 wasn't a good test I don't know what year is. The strategy did survive 2008, (although not stated with what return) so that was as good of "backtest" as any. Now it is possible she used more leverage in 2014, but the market move was way less than in 2008.
4. Exactly. So how come she made money in the previous years and people using the same strategy and portfolio margin made 18% in 2015?
5. That is not true. 2009 had a 20% drop. 2010 had a 12% and 10% drops.

2011 had an 18% drop, and she made money. 2012 had two 8% drops, she made money. 2015 had a 12% drop, the Yahoo boys made money.
6. According to the now removed TT Youtube video in 2014 August, her fund was already up 10% by August, so there was really no reason to over leverage more than usual.
7. This is probably correct. After the loss she didn't have enough money to actually trying to make it back because the scheme trades were tying up the money.

So you are generally right that it was over leveraging, that caused her loss, but it wasn't the drop in 2014, because similar and bigger drops before and after didn't cause the same loss. I think it was the whipsaw nature of the market in 2014 and she selling more than usual calls that was different from other years.

But hey, I could be wrong. And before any idiot chimes in, I just want to understand what was different about 2014, when other years with bigger moves were profitable using the same strategy....
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There is no proof that she survived 2008 or made any money back then .
 
Pekelo said:
I think you are into it, but some of your facts are just plain wrong:



1. She has been using portfolio margin for the last 5 years at least, so why 2014 was the year screwing her?
2. I think it was actually the call side that did more of the damage. The market dropped only 9% in 5 days (also happened in previous years and in 2015), she increased the call selling on the other side, then the market whipsawed and recovered in just 7 days.
3. She has been using the same strategy since 2008. If 2008 wasn't a good test I don't know what year is. The strategy did survive 2008, (although not stated with what return) so that was as good of "backtest" as any. Now it is possible she used more leverage in 2014, but the market move was way less than in 2008.
4. Exactly. So how come she made money in the previous years and people using the same strategy and portfolio margin made 18% in 2015?
5. That is not true. 2009 had a 20% drop. 2010 had a 12% and 10% drops.

2011 had an 18% drop, and she made money. 2012 had two 8% drops, she made money. 2015 had a 12% drop, the Yahoo boys made money.
6. According to the now removed TT Youtube video in 2014 August, her fund was already up 10% by August, so there was really no reason to over leverage more than usual.
7. This is probably correct. After the loss she didn't have enough money to actually trying to make it back because the scheme trades were tying up the money.

So you are generally right that it was over leveraging, that caused her loss, but it wasn't the drop in 2014, because similar and bigger drops before and after didn't cause the same loss. I think it was the whipsaw nature of the market in 2014 and she selling more than usual calls that was different from other years.

But hey, I could be wrong. And before any idiot chimes in, I just want to understand what was different about 2014, when other years with bigger moves were profitable using the same strategy....
More...


We have no proof of 2008 that she actually traded through it, so we will leave that out of our discussion.

I have no doubt she traded through other dips in previous years but what we don't know is how much margin she was using those years. She may have been more cautious in the previous years. What we do know 2014 she got greedy and used way too much margin.

True we don't know if it was the initial drop or the snap back that caused her ruin, but does it really matter? She would not have been caught on either move if she had been using margin properly.

There is no way to lose 50% if your account on a 10% dip unless you use portfolio margin and use your entire account to sell options. You can easily backtest it yourself.
The problem was gamma exploded in her face. Options that she sold that were once $2 shoot up to $20-$30. The initial margin that was $200 when she wrote the option shoots up to $2000-3000 range in a drop.


Whether she was caught on the put or call side, it really doesn't matter does it? The 2014 whipsaw is just a tiny blip when you compare it historically.

It was greed that brought her down, she over traded because she wanted to chase returns so she could collect more fees.

"Bulls make money, bears make money, pigs get slaughtered"

Greed kills.........
 
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