What does Karen the Supertrader and her results say about volatility? Oversold?
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It doesn't matter to me. I was simply pointing out a statistical fact in the last 14 years. I have no idea if she got a margin call, came close to one, have no idea.
I stated several times I am not defending her or her methods. I mentioned the 2 SD as a reference point on how she might be doing something similar . Yes, if she was heavy leveraged then shit would hit the fan.
Haha, no, this colleague of mine was relatively insignificant and the events occurred earlier on, in 2007. The bigger news that followed and that you know about was more of the same, though.I know who you are talking about. He was, however, much bigger news then Karen
Good god, no, although there are parallels, for sure...
Hm, lately I've been thinking and studying historical returns on sale of volatility...and as much as people like to say vol is overpriced, quoting ETF/ETNs like TVIX, VXX etc. as proof, it seems to me that risk-adj return is almost perfectly correlated with equities...for instance people say VXX have fallen 95% since 2009, well guess what the S&P has also risen 95%...so maybe you're just better off being long equity rather than a systemic vol seller, it's much easier to deal with also.
The returns of equities should be better. The "edge" in selling vol is because the long onlies are buying it and they are willing to pay a premium because it protects their portfolio.
If the risk adjusted returns of selling vol were better than buying equities then they wouldn't be buying vol to hedge their portfolios (building portfolios not on the efficient frontier).
Yes true...if long equity are informed & rational...however looking at for instance CBOE indices like the PUT-write index it seems vol outperforms. also sale of front-month VIX futures since 2008 has been very profitable, see for instance http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2094510
I think actually one of the best ways to make money is just sell puts on indices...selling calls make no sense since it's unlimited risk and indices constantly uptrend. that way you get long delta (equity) and short vol which should give an edge. in fact didnt sle talk about this in forms of regulatory arb..
Selling insurance and liquidity in a world of finite capital offers edge. I don't think there's any doubt about this. However, the devil, as always, is in the details of the implementation.
If selling puts provides better risk reward than being long the index. You should short the index and sell the puts and create a more efficient portfolio. This would be tantamount to selling calls.
I disagree with this...
That is true, but short calls basically give unlimited upside risk. And short puts limited downside, also if the equity is trending up long-term wouldn't then short puts be better?
I mean, I guess short equity short vol make sense since they are inversely correlated and vol outperforms, but for me at least it's hard to quantify this in terms of R/R, potential profits etc. I'm not confident selling naked or deltahedging and it's unpredictable. I just sell downside spreads, use some of the money to buy ATM puts (no wings on this) so that I'm long delta and always @ net credit. Then diversify in time and space (dont open all at once and use a vast array of indices). If it goes down to my spread I will actually roll it up to the callside, to try and make back losses, that way I dont get caught martingaling in a trend...this seems to work amazingly well for me at least.