Schadenfreude Warning: "Karen the Supertrader"

[Pekelo]

First, I would like to thank Chubbly for the intelligent response. People get so upset about her that even a normal discussion has to be appreciated. I do agree that it was greed that took her down and yes, ultimately it doesn't matter which side hit her harder.

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.

Well, we do have some indicators on her PM use. Quoting from her first TT video (2012 October), in 2011 she made 53%, in a year when there was a market tank of -18% in August. That was her only down month but only by -4.5%. (according to her, so we have to take this with a grain of salt) Assuming this is true, how do we reconcile this fact with the 2014 events? The point here is that she must have been using heavy PM back in 2011 to make 53%, and still, a quite large -18% drop caused only a -5% equity drop. This just doesn't add up.

At this point we might have to entertain the idea that she was making up the performance numbers all along.

 

[ScalperJoe]

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."

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.

"it would represent just 1% of what they collected in total during 2015."

Sorry, my bad. It's not 1%, it's more like ONE TENTH of ONE PERCENT! Karen is not that big of a fish at all compared to the 2015 aggregate fines collected by the SEC.

 

[ScalperJoe]

6. According to the now removed TT Youtube video in 2014 August, her fund was already up 10% by August...

This is a key piece of the puzzle. The SEC is after the "ill-gotten gains" she allegedly made with the "Scheme Trades." If we assume what was said in the TT video as being true, then as long as she didn't spend all the money, she may still have it. Therefore, it would make sense for her to offer a settlement.

 

[ScalperJoe]

My main interest is how did she manage to raise that much capital without any decent pedigree???

The complaint is vague except for the references made regarding mystical "Investor A" who isn't named.

Complaint at paragraph 16:

"In 2008, Bruton organized the HDB Fund as an investment vehicle to trade options for herself and approximately five other investors."

Complaint at 17:

"The largest and primary investor in HDB Fund was a wealth individual (“Investor A”). Ultimately, Investor A became the sole investor in HDB Fund."

"Investor A" who isn't identified in the complaint was the main source of capital when she started the HDB Fund in 2008. He was the "fat cat" who was able to take the $30 million hit when she finally wrote down the loss on HDB in 2015. Yet, as I posted above, less than one year later, he put the remainder of his capital, $65 million, into the HI Fund. Also, the complaint says she started the HI Fund to attract "friends and family" money. The PPM was only offered to "accredited investors" with a minimum of $250,000 to invest.

My guess is she only had a handful of investors. What makes matters worse is if she attracted more capital once she became known as "Karen The Supertrader" and was promoted by Tasty Trade, especially if she raised funds while engaging in the "Scheme Trades."

 

[F_488]

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.........

If you watch the videos, which we cant because Tasty Trade have removed them. Karen was Trading small size in 2008. 2007-2008 she was trading her own account. In 2008 she was started to trade some money from her old boss, her account size was less than $1 Million.

 

[Chubbly]

First, I would like to thank Chubbly for the intelligent response. People get so upset about her that even a normal discussion has to be appreciated. I do agree that it was greed that took her down and yes, ultimately it doesn't matter which side hit her harder.



Well, we do have some indicators on her PM use. Quoting from her first TT video (2012 October), in 2011 she made 53%, in a year when there was a market tank of -18% in August. That was her only down month but only by -4.5%. (according to her, so we have to take this with a grain of salt) Assuming this is true, how do we reconcile this fact with the 2014 events? The point here is that she must have been using heavy PM back in 2011 to make 53%, and still, a quite large -18% drop caused only a -5% equity drop. This just doesn't add up.

At this point we might have to entertain the idea that she was making up the performance numbers all along.

I will agree with you on that. Since she was lying to her clients about the scheming trades who knows when/if she told the truth on TT.
Unless a forensic accountant goes through all her transactions we will likely never know. That will only likely happen if this goes to trial. I assume she will like to avoid that and take a plea bargin.
Maybe if it becomes a criminal case we will get more information.

Ultimately this is bad for Options trading which is unfortunate because I trade options. I was able to trade through Oct 14 only because i was hedged. The problem with hedging is lower returns. I also consider trading less as a form of hedging as taking less trades can be your position to survive a 10-50% market drop

 

[Chubbly]

"it would represent just 1% of what they collected in total during 2015."

Sorry, my bad. It's not 1%, it's more like ONE TENTH of ONE PERCENT! Karen is not that big of a fish at all compared to the 2015 aggregate fines collected by the SEC.

And that number is only the ones the SEC is able to catch so you have to assume the numbers of scams are much larger.

Karen is peanuts compared to Madoff and I was reading an article that there a number of scams at the Madoff level going on. He wasn't a one off.

Until people try to pull their money out the scams aren't exposed.

 

[ScalperJoe]

If you watch the videos, which we cant because Tasty Trade have removed them. Karen was Trading small size in 2008. 2007-2008 she was trading her own account. In 2008 she was started to trade some money from her old boss, her account size was less than $1 Million.

This is good to know. Just as Maverick said, she took some educational courses and then decided she would be a great manager, so that doesn't sound like she was truly qualified.

Nevertheless, she attracted "Investor A" in 2008 and started her fund with MULTI-MILLIONS.

I guess there's a sucker, I mean a fat cat, born every minute, lol!

 

[F_488]

When I watched the videos I took some notes, below is the Details -

In 2002 Karen knew nothing about Trading. Her friend talked her into spending $22,000 on a PHD Invest tools Course. (Who needs friends like that)

Opened her first Trading account at TOS with $10k.

In 2007 retired from accounting job to Trade full time and took $100k from an account that was being managed for her at Merrill Lynch and added it to her TOS Account.

In 2007-2008 earn't $50k profits in her TOS Account.

Her old boss approached her to manage some money for him. On the video Karen said it took him 3 months to persuade her.

In 2008 with some investors on board she was Trading with 700K.

In 2008 moved from stocks options to index options.

In 2011 she had earn't $41 Million in profits.

So obviously between 2008 - 2011 a lot of investors jumped on board to be able to get profits of $41 Million.

At the end of video 1, its said she was managing $160 million with $55 Million in profits. The date was 30th May 2012.

Video 4 Karen said she was managing $300 Million and the funds were up 11.5% net to investors in 2014 and she was close to $100 Million in profits since the funds started. Published date of video 4 was 21st Aug 2014

 

[DTB2]

Perhaps the early family and friends investors were designed to reel in Mr. Big?