What if Karen the Super Trader had an effective hedge?

[sle]

Life is good! I just adopted my fourth child and we hope to have our final child adopted by the end of the year. We will no longer be foster parents as we will have adopted 4 of the 16 children that we have fostered! Our fifth child was adopted from Guatemala. I just bought a 12 passenger prison van to haul around our 7 member family!

You are a saint, dude!

Is there a better way to hedge the overall portfolio? Is there a better way to generate negative deltas rather than selling calls? Should she hedge the portfolio buy buying out of the money puts (teenies)?]

If I remember correctly, you are selling options in the 25-delta range? If that's so, simply shorting delta would not work, since a big portion of your risk is the gamma that you are short. In fact, being short delta against these things is very likely to generate losses (or wipe out profits) in a bull market.

There are several choices. First of all, you can try buying back the wings and thus define the loss. That would, of course, significantly reduce your profits, but also would make the worst case scenarios more palatable - so you'd go from a Black Swan event to a Gray Goose event. Second of all, you can try to find some form of proxy hedges, like buying VIX calls or buying cheaper puts on stocks/ETFs that you expect to get slammed in a crash. It's a lot more involved, but if you play the game correctly you can find ways to even make money in the crashes. You can use that statistical inference that you'll be a master of to figure out what are good related hedges.

Not one meaningful post from you guys on hedging!

Well, see above I have to assume that the whole "let's help Karen" thing is a proxy for "let's help me support my adopted kids", which is why I am happy to get involved.

 

[Sweet Bobby]

You are a saint, dude!


If I remember correctly, you are selling options in the 25-delta range? If that's so, simply shorting delta would not work, since a big portion of your risk is the gamma that you are short. In fact, being short delta against these things is very likely to generate losses (or wipe out profits) in a bull market.

There are several choices. First of all, you can try buying back the wings and thus define the loss. That would, of course, significantly reduce your profits, but also would make the worst case scenarios more palatable - so you'd go from a Black Swan event to a Gray Goose event. Second of all, you can try to find some form of proxy hedges, like buying VIX calls or buying cheaper puts on stocks/ETFs that you expect to get slammed in a crash. It's a lot more involved, but if you play the game correctly you can find ways to even make money in the crashes.


Well, see above I have to assume that the whole "let's help Karen" thing is a proxy for "let's help me support my adopted kids", which is why I am happy to get involved.

Finally someone who has a meaningful post. Thank you!

 

[Pekelo]

Dear reader, if you wonder, why did she do it? Wonder no more. The answer is from the reddit link:


">>She just should have owned up to the loss and kept making money.

>I don't think there was any way to do that. Her fund was performance fee only and high-water mark, if the loss was big enough and she took it she would have zero income perhaps for years."

 

[Pekelo]

And this is what we get from a PhD...

She had $300 million under management. Look so her 2018 SEC filing. She indicates that she has over $100 million in the fund. It’s the largest box you can check. They don’t have a $300 million box.

Show me the money!!! I mean show me the link! No link, no return, no service!

By the way an hour ago she had 100 MM no she has suddenly 300MM*? That is some fast money baby!!

*after I pointed out that 100MM for her is a step down

 

[sle]

Show me the money!!! I mean show me the link! No link, no return, no service!

Honestly, we are we talking here about Karen at all? I don't know what she was doing but it certainly sounds very fishy and not worth discussing. On the other hand, figuring out an effective hedge a short vol portfolio is an interesting topic. If in the course of the discussion we produce ideas that would help SB upgrade his prison van, that it would be totally awesome.

 

[newwurldmn]

Honestly, we are we talking here about Karen at all? I don't know what she was doing but it certainly sounds very fishy and not worth discussing. On the other hand, figuring out an effective hedge a short vol portfolio is an interesting topic. If in the course of the discussion we produce ideas that would help SB upgrade his prison van, that it would be totally awesome.

Selling tinies and collecting fees only on realized gains while pushing unrealized losses out forever.

I posit that if you are in the business of selling index vol tinies, there is no hedge in the equity vol space that will cost less than that and likely there is not hedge in another asset class that would be less expensive. The only strategy you can employee to not blow up would be some kind of stop loss.

 

[sle]

I posit that if you are in the business of selling index vol tinies, there is no hedge in the equity vol space that will cost less than that and likely there is not hedge in another asset class that would be less expensive. The only strategy you can employee to not blow up would be some kind of stop loss.

I thought Bobby was legging 25ish delta strangles? Do I remember wrong?

 

[Pekelo]

Honestly, we are we talking here about Karen at all?X On the other hand, figuring out an effective hedge a short vol portfolio is an interesting topic.

Well, OP made an unsupported claim in the first post, not to mention he is upping the stakes, so asking for evidence is in order. I think he simply has reading comprehension issues, apparently not taught in PhD classes. (after several readings he still thinks the government doesn't understand rolling)

But I agree, we have 2-3 different topics going on, not to mention his offtopic personal attacks. And as a good cult member, he is unable to acknowledge that the dear leader can be at fault.

And yes, hedging the original Karen strategy itself is an interesting topic. I tend to agree with newwurld, because of the penny nature of the gains, there isn't much possibility of hedging except getting out quickly when the position turns sour. Otherwise the hedge takes away too much of the gains...

 

[beerntrading]

As of mid June there's a motion to stay for the case against here (read: she and the SEC have reached some settlement agreement--or are substantially close). https://www.courtlistener.com/docke...change-commission-v-hope-advisors-llc/?page=2

Hope Advisors is still around. For now.

 

[beerntrading]

Finally someone who has a meaningful post. Thank you!

And really??? Another way to look at this would be that some of us are expending more meaningful thought than trying to find something cheaper than a hedge on the cheapest hedge there is. Point in case:

Well, see above I have to assume that the whole "let's help Karen" thing is a proxy for "let's help me support my adopted kids", which is why I am happy to get involved.