Schadenfreude Warning: "Karen the Supertrader"

[DTB2]

34. In the summer of 2015, Hope caused the HDB Fund to realize its losses. This resulted in more than a $30 million decrease in the “capital account” of Investor A.

Seems she may have rolled positions and the August 2015 period killed her.

54. By 2014, the Funds were trading heavily in options on S&P 500 Index Futures. Those futures are referred to as E-Minis.

58. In October and December 2014, the Funds experienced significant trading losses due to volatility in the financial markets.

A look at the charts shows she probably was assigned short eminis during the drop in Oct. 14 and wound up 300 points under water by Nov. 14.

88. The HI Fund has not had a month with a net realized loss since August 2011, just after it was opened.

Never booked a loss more likely IMO. Tasty parlance calls that adding to your core position.

 

[RedDuke]

I think the word hedging is very much misunderstood. You cannot hedge these positions by definition of the word. What hedging really means is reducing exposure to something. I buy health insurance so that if something happens to me, the insurance absorbs some of the shock that would come from an unexpected medical expense. Insurance does NOT keep me from getting sick. Same with car insurance, homeowners insurance, etc. It's purpose is to minimize loss. The problem with how the word gets used on ET, it gets used as this magical potion where losses disappear or turn into profits. The other missing part is somehow in the magical world of ET, hedging can be done "after" the fact. With health insurance for example, we have the so called "waiting period". If I get sick, I can't simply go out and buy insurance and then take advantage of the benefits. The insurance has to be bought "before" the fact. Same is true with ALL insurance. But many on ET don't like that, because of the cost. They think they can wait until something bad happens, and THEN go out and get insurance and magically make the fire disappear.

The fact of the matter is, these positions cannot be hedged without either "increasing risk" or simply shifting it. For example, if I sell a naked put 10% down and the market tanks 10% and I sell shares to hedge, all I did was shift the risk from the put side to the call side (short put and short shares = short call). That is NOT hedging. Rolling to the next month by rolling up and out or down and out is not hedging, it's simply doubling down and building a close relationship to God via praying.

The fact is, you have sleep in the bed you make. If you sell this 5 delta crap, that's your bed for better or worse. The absolute best thing to do is if the market moves against you, just buy them back and eat the loss. Because you can't hedge them. This is why insurance companies who specialize in this business and they happen to be pretty good at them which is why Buffet likes to own them, this is why they spend so much time on "pricing" insurance. If you price the risk correctly, then you let the central limit theorem do it's thing. When a hurricane hits south fl and it will, you simply eat the loss because the pricing you built into your policies will cover the loss over the long run.

Very well said. Valid points that's why our futures are fully automated. They kick in before the storm, and like an insurance company many times we get stopped out and loose a bit.

As far as rolling (PUTs), when VIX really spikes, rolling gets quite interesting if original position was entered correctly (no doubling down )

 

[tradelosses]

I suspect she blew up selling calls ..in nov-dec 2014 the market went up very strongly. She likely sold calls to hedge in October and then was caught off guard by the sudden rebound. Or maybe a major trade error . or maybe jsut plan oold fraaud

 

[coolraz]

So hypothetically we could get a 5% correction that could see the VIX spike 50% where in 2008 a 5% drop might spike the VIX 10%.

Huh? Why would you use % change in Vix? Vix is already a % (being IV). I thought you had a volatility "model". If it's any good it should very clearly explain you why Vix spiked to where it did in August 2014 vs where the Vix spikes were in 2008. There's a very sound logic to it, you just have to take the time to figure out. If you tell me what the SPX will be tomorrow I will tell you what the VIX will be and the IV of every option in the SPX chain. Still think I'm bullshitting about my edge??? lol

 

[Martinghoul]

The fact is, you have sleep in the bed you make. If you sell this 5 delta crap, that's your bed for better or worse. The absolute best thing to do is if the market moves against you, just buy them back and eat the loss. Because you can't hedge them. This is why insurance companies who specialize in this business and they happen to be pretty good at them which is why Buffet likes to own them, this is why they spend so much time on "pricing" insurance. If you price the risk correctly, then you let the central limit theorem do it's thing. When a hurricane hits south fl and it will, you simply eat the loss because the pricing you built into your policies will cover the loss over the long run.

This is correct... Another thing that insco's do is hold large reserves (in fact, they're required to do so by the regulator).

 

[coolraz]

This is correct... Another thing that insco's do is hold large reserves (in fact, they're required to do so by the regulator).

And ins co also re-insure their risk by buying insurance on their own policies that they issued...typically at Lloyd's. Which is basically a hedge against worst case risk and they're making money off the spread.

 

[Maverick74]

Huh? Why would you use % change in Vix? Vix is already a % (being IV). I thought you had a volatility "model". If it's any good it should very clearly explain you why Vix spiked to where it did in August 2014 vs where the Vix spikes were in 2008. There's a very sound logic to it, you just have to take the time to figure out. If you tell me what the SPX will be tomorrow I will tell you what the VIX will be and the IV of every option in the SPX chain. Still think I'm bullshitting about my edge??? lol

This post was completely nonsensical. There are some nice free online tutorials you should check out.

 

[coolraz]

Thanks Maverick, but I already signed up for the InvestTools seminar, starts tomorrow, best $12,000 I will spend : )

Seriously though, I respect you very much and you are very valuable contributor to ET. But you bashing people's "knowledge" of basics on the other thread, yet based on what you said in your post (maybe I misunderstood it) you don't seem to know what the VIX to SPX relationship really is (hint, it's not just % move, there's another variable).

 

[Maverick74]

Thanks Maverick, but I already signed up for the InvestTools seminar, starts tomorrow, best $12,000 I will spend : )

Seriously though, I respect you very much and you are very valuable contributor to ET. But you bashing people's "knowledge" of basics on the other thread, yet based on what you said in your post (maybe I misunderstood it) you don't seem to know what the VIX to SPX relationship really is (hint, it's not just % move, there's another variable).

If I was a betting man, and it turns out I am a betting man, I would bet the farm that you did not understand my post. I usually win when I bet the farm so please take that into consideration.

 

[coolraz]

Of course you're a betting man we all are that's why we're traders!

I did understand what you said. But in your post you imply that the SPX/VIX relationship has somehow changed from 2008 to 2015/2016, but it actually has not (unless you look at it in the simplistic % terms like you were doing)

Do you know what the other variable that I'm talking about is? Do you just sit there and say 'vix' is X today like those tastytrade guys (which btw are completely clueless to the spx/vix relationship as well and just repeat the "usually when spx goes down vix goes up" mantra), or can you tell me what the vix will be for a certain spx drop? Better yet, can you tell me what a 5 delta put sold today will be worth in 5 days with a 5% or 10% SPX drop?