What does Karen the Supertrader and her results say about volatility? Oversold?

[oldnemesis]

In private, I'm quite sure she has already reassured all her clients that she does use stops, she does hedge, she does do adjustments, she does select better entry points, she does manage winners, etc. At least, for 190 million of her clients money, I hope she does :eek:

Why are you so confident that she does all these things???

I trade very much like her BUT I do hedge, etc.

Am I certain that adding all the cautions actually improves profitability??

NO.

I THINK so... but I have not run exhaustive comparative tests to be certain. Of course it depends on what date ranges you test. I THINK that I would do better in a crash... but how do I KNOW?? AND would the improved performance in a crash make up for the reduced performance during more normal times....and how frequent are the crashes??? not in the past... but in the future???



Every time I put on a spread instead of a straight short put, or add a hedging position or reduce my net exposure in one direction I ask myself if I am just wasting money ???

I don't know.

 

[newwurldmn]

She sells individual calls and puts in SPX.
She hasn't sold ICs since the 2007-2008 timeframe.
Her call/put selling strategy has been adapted to the market conditions over the years.

It's all the same.

Bottom line is that she either is lying about her returns or about her strategy.

I believe it's the latter.

 

[Pekelo]

As were the Madoff investors who were convinced he traded split strike conversions.

Did he go on talkshows explaining in detail how he did it? I must have missed that one...

There is nothing incredibly unbelievable about what she does, the only thing what we don't know how she adjust when there is a sudden movement. That part of the strategy what saves her ass. Since they are monitoring the market all the time, it is safe to say that she doesn't let a position go too bad for too long....

A stress test of the strategy would be nice, but again, we don't know how she handles the situation. And as I pointed out, in the last few years there were a couple of steep movements in both directions and apparently she handled them fine.

What's the link again? Thanks.

Study group of her strategy:

https://groups.yahoo.com/neo/groups/supertraderkarenstudy/info

Group Website
http://smoothprofit.blogspot.com/

 

[Pekelo]

Wide wing condors with 50% capital deployment just do not yield 56% portfolio return in 2011.

I am not sure where you got that 56% return in 2011, specially that this was the year with the argued about 16-18% drop in the summer. I think you misunderstood something. Her highest return in recent years was 27% or so, if I recall correctly... Her biggest % gain was when she did 50% with her own 100K, back in 2007 (most likely).

As they say, everybody is a genius in a bull market.

1. Actually she said that the last year (2013) was rather challenging and it was mostly up and up, the biggest drop being less than 5% in a month.

2. As Van Halen showed it, she survived at least 3 occasions in recent years when the market moved 2 SD. (or 16-20% in a few weeks)

Rich people aren't dumb.

Oh yes, they are. They lose money just like everyone else. And sometimes greediness takes over caution...

 

[drownpruf]

It's all the same.

Bottom line is that she either is lying about her returns or about her strategy.

I believe it's the latter.

The last time I heard she was using D1 to hedge via ES. I have also heard that she is not registered and holds the funds commingled in an LLC account. Prior to that the managed funds were simply in her personal account at TOS. Not much of a difference. Regardless of the moronic strategy, it is not legal to commingle funds. How can anyone trust her if she won't maintain a legitimate management structure?

The fact is that you can sell down and out index puts at 3 handles over atm vol and structure a weak synthetic straddle at edge. Within a sigma or two you will survive. The edge is meaningless if you're always in the market (ignoring vol) as eventually the risk to gamma will overwhelm her ability to hedge into the skew. She is selling skew at edge, but what of the vol-line if her strikes are hit? 30 vol or worse. If the structure resembles a weak-synthetic straddle (vol-edge) then she will absolutely lose it all beyond two devs on the downside. ICs? It is binary and she'll lose the number she allocated. At least with the IC she can't go debit.

Sosnoff once stated he ran across her account due to the size of the positions, or words to that effect. She was trading a sole prop account at the time. He doesn't give a shit as he no longer has an equity stake in the operation.

I wouldn't want to sit without guarantees in a TD account while some fool takes a $200mm account to a billion dollar debit. Whoever mentioned a 50% allocation had better hope that it doesn't apply to grandma's strategy.

 

[drownpruf]

I am not sure where you got that 56% return in 2011, specially that this was the year with the argued about 16-18% drop in the summer. I think you misunderstood something. Her highest return in recent years was 27% or so, if I recall correctly... Her biggest % gain was when she did 50% with her own 100K, back in 2007 (most likely).



1. Actually she said that the last year (2013) was rather challenging and it was mostly up and up, the biggest drop being less than 5% in a month.

2. As Van Halen showed it, she survived at least 3 occasions in recent years when the market moved 2 SD. (or 16-20% in a few weeks)

Oh yes, they are. They lose money just like everyone else. And sometimes greediness takes over caution...

Amen. Lots of people knew that Madoff's "named" strategy was a "split-strike conversion" which is nothing more than a long call vert (he was supposedly long stock). Of course the guy was making money throughout the crash in bull verticals lol.

Simons from rentech had some exposure to Madoff through that GF feeder. My brother received a prospectus from GF as well, but never acted on it.

 

[newwurldmn]

It was the supposive stock selection that Madoff claimed to make his money on. The risk reversal was his hedge. He had a long only basket vs OEX short.

Amen. Lots of people knew that Madoff's "named" strategy was a "split-strike conversion" which is nothing more than a long call vert (he was supposedly long stock). Of course the guy was making money throughout the crash in bull verticals lol.

Simons from rentech had some exposure to Madoff through that GF feeder. My brother received a prospectus from GF as well, but never acted on it.

 

[newwurldmn]

Yeah. My personal belief (and SLE might disagree) is that selling skew is a very dangerous trade. You are effectively selling second and third order convexity. It requires massive leverage to generate reasonable returns.

She has a filing where she is trying to raise 100MM for her fund. I think that she's probably had decent returns but she hasn't earned 100MM selling vol. She's raised 100MM (and maybe not even that).

The last time I heard she was using D1 to hedge via ES. I have also heard that she is not registered and holds the funds commingled in an LLC account. Prior to that the managed funds were simply in her personal account at TOS. Not much of a difference. Regardless of the moronic strategy, it is not legal to commingle funds. How can anyone trust her if she won't maintain a legitimate management structure?

The fact is that you can sell down and out index puts at 3 handles over atm vol and structure a weak synthetic straddle at edge. Within a sigma or two you will survive. The edge is meaningless if you're always

in the market (ignoring vol) as eventually the risk to gamma will overwhelm her ability to hedge into the skew. She is selling skew at edge, but what of the vol-line if her strikes are hit? 30 vol or worse. If the structure resembles a weak-synthetic straddle (vol-edge) then she will absolutely lose it all beyond two devs on the downside. ICs? It is binary and she'll lose the number she allocated. At least with the IC she can't go debit.

Sosnoff once stated he ran across her account due to the size of the positions, or words to that effect. She was trading a sole prop account at the time. He doesn't give a shit as he no longer has an equity stake in the operation.

I wouldn't want to sit without guarantees in a TD account while some fool takes a $200mm account to a billion dollar debit. Whoever mentioned a 50% allocation had better hope that it doesn't apply to grandma's strategy.

 

[drownpruf]

It was the supposive stock selection that Madoff claimed to make his money on. The risk reversal was his hedge. He had a long only basket vs OEX short.

Yeah, well no long stock strat with an OEX bear risk-reversal is going to earn in a mkt down 6-10% on the month. Anyway, it's moot as the guy had no positions. The Greenwich Fairfield docs were ridiculous and it would've failed within months if any true disclosures had been made. I'd like to get a copy from my brother as I think he's still got the DD.

 

[drownpruf]

Yeah. My personal belief (and SLE might disagree) is that selling skew is a very dangerous trade. You are effectively selling second and third order convexity. It requires massive leverage to generate reasonable returns.

She has a filing where she is trying to raise 100MM for her fund. I think that she's probably had decent returns but she hasn't earned 100MM selling vol. She's raised 100MM (and maybe not even that).

You can't hedge speed (3rd order) with spot, obviously. So it goes for anyone selling naked or with wings. You need optionality to hedge this things or your hedge becomes the primary position when things go sour. You can sell condors as long as you don't scale, but then what is the point of the exercise if you can move size?