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

[Pekelo]

This lady with a straight face went on a show and said,
1. she doesn't hedge,
2.she doesn't adjust,
3.she isn't selective on entries,
4. she doesn't manage trades,
5.and she doesn't use stop losses.

1. not true. Playing both sides is hedging.
2. not true. That's why they watch the market 24/7
3. true
4. not true They keep closing them all the time.
5. true

Hey, you got 2 out of 5 right, that ain't bad!!!

Now we already established the fact earlier (you know your misread 56% return) that you don't always understand correctly what she said, so next time you think she said something, ask me about it beforehand.

Also, just because she said something 2 years ago (earliest interview) that doesn't mean that they are still doing it the same way. Anyway, her credibility comes down to Sosnoff's credibility, he is the one who backed her claims and is in a position to stand up for her or refute her....

 

[jamesbp]

Anyway, her credibility comes down to Sosnoff's credibility, he is the one who backed her claims and is in a position to stand up for her or refute her....

You nailed it ...
Sosnoff has repeatedly stated that;

- he is a pretty aggressive risk taker
- her approach to trading is way too risky for his liking
- that she has not really been tested in a real market crash ... say market down +50%
- that he has not and would not invest in one of her funds

Is that the kind of endorsement you were looking for!

 

[SIUYA]

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.

This comment is spot on.
If you applaud grandma, but also think that she will one day blow up with her size then keeping your account at the same broker as her is risky business.

 

[Van Halen]

Why do people not understand this simple concept? if you don't get it, honestly, you shouldn't be trading. There's a reason it's called a 2 SD move. It's because IT DOES HAPPEN sometimes. If it doesn't happen it wouldn't be called a 2 SD move.

I think most people do understand the concept. Yes it happens sometimes, so does a 3 SD move, a 4 SD move, and so on. Under the right conditions, anything is possible. But if you think like that you should just put your risk capital under a mattress.

All I was showing was that "IF" she had sold just outside of the SPX making a 2 SD move, she would have had no losers in the last 14 years (maybe longer, that is all I verified). I don't think anyone is saying it will never happen, just that it hasn't happened.

So knowing that, is that a good bet or not? I personally would always hedge in some manner to keep me in the game if things go horribly wrong.

 

[jamesbp]

All I was showing was that "IF" she had sold just outside of the SPX making a 2 SD move, she would have had no losers in the last 14 years (maybe longer, that is all I verified).

I don't think anyone is saying it will never happen, just that it hasn't happened.

SPX fell approx 35% in Aug/Sep 2008 from ~1300 to ~840.
Was this inside 2 SD move?

 

[Van Halen]

SPX fell approx 35% in Aug/Sep 2008 from ~1300 to ~840.
Was this inside 2 SD move?

It moved outside 2 SD but ended the month back inside that level. That chart is one of the five charts attached to a post I made on page 21 of this thread.

Again, I am not endorsing her or her methods. I was just pointing out how it would have played out if those were the levels she was selling at. I have no idea if that is what she is doing.

 

[Pekelo]

SPX fell approx 35% in Aug/Sep 2008 from ~1300 to ~840.
Was this inside 2 SD move?

I would say that was probably 3 SD, but the timeframe is also important. That move took 5-6 weeks, so there was plenty of time to adjust positions. I think we have to look more at 1 day large moves, because she DOES manage the positions. (I think after a big move they might wait a few days for the market to chill, before putting on new positions, but I could be wrong)

So in those 6-7 weeks there were days with 100 points moves, and not just down.

I counted 5 days with 90-100 points down moves and 2 days with similar upmoves. Now if we are talking % instead of points, the 3 biggest moves were in the 2nd week of October from 1000 to 910 (9% drop) and the next day a 8% drop. The following day saw a 10% raise, so the biggest % moves in 1 day happened upward in 2008. There was an even bigger one on the 28th, from 850 to 940.

Now the steepest 2-3 days move was also upward from 840 to 1040 in 48 trading hours (23%). Followed by a complete reversal of similar magnitude. I would love to know how she manages the positions in such occasions

 

[sle]

Playing both sides is hedging.

Really? How is selling convexity on both sides of the distribution is "hedging"?

 

[jamesbp]

It moved outside 2 SD but ended the month back inside that level. That chart is one of the five charts attached to a post I made on page 21 of this thread.

Again, I am not endorsing her or her methods. I was just pointing out how it would have played out if those were the levels she was selling at. I have no idea if that is what she is doing.

What are the levels and how have you calculated the 2 SD moves for Aug/Sep 2008?

 

[panzerman]

All I was showing was that "IF" she had sold just outside of the SPX making a 2 SD move, she would have had no losers in the last 14 years (maybe longer, that is all I verified.

I thought she said she did 95% probability on puts and 90% on calls. That would make it a 1.643 SD move to the down side or a 1.282 SD move to the upside.

In Excel try this:

=normsdist(-1.643) = 0.05

=normsdist(1.282) = 0.90

The normsdist function calculates the area under the curve to the left of a given SD.