Ernie Chan turning to dark side

Discussion in 'Automated Trading' started by guru, May 11, 2022.

  1. guru


    This is from a private trading chatroom where someone who diligently followed Ernie Chan, found that Ernie started cheating after having a large drawdown this year.
    At, Ernie was initially posting 59% return for 2021 and reasonable returns till March 2022:

    Then in April 2022 he had a large 30% drawdown and to mitigate it, he retroactively swapped previous returns, dividing everything by 2:

    Not a wipe out like James Cordier, but now another non-trustworthy trading authority and book writer.

    (screenshots are originals from QTS Capital Management website)
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  2. My favorite thing in the world is seeing smarmy smarty pant quants get fucked.
    PoundTheRock, Nobert, Grantx and 3 others like this.
  3. Gambit


    Ernie is now stepping away from management of the firm. QTS has had large drawdowns (close to 50 percent) in their early trading days.
    But he's had huge wins too and he's net positive. Sad to see...
    guru likes this.
  4. ET180


    Well, I prefer althletic young busty blond women, but to each their own.
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  5. hahahahahahahha, my mind didn't even go there!
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  6. xandman


    That's weird. Where you an equities analyst from an earlier time?
  7. Worked with quants for a few years.
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  8. TheDawn


    What's his strategy? or strategies? If he is dividing everything including his return by half that's not too bad, might be bad for someone who favours loss-mitigating strategies but still much better than hiding the losses amidst the returns.
  9. guru


    Not sure about specifics of the strategy as they are not public, but I believe it's selling options and collecting theta. You may find some details on their website, see below.

    As for "not too bad", this depends whether you give them $100K to invest and expect 34% drawdown, or 17% drawdown. Positive returns are always difficult to estimate, but as an investor you may be concerned about how much you may lose. And what if one investor lost 34% but then they tell another investor that it was 17% because they adjusted leverage retroactively. What does it mean then, and how would you even control the leverage and drawdowns when this can be switched after the fact?
    Though yes, completely hiding losses would be outright fraud. In this case it may be the question of trustworthiness, with some potential for more dishonesty in worse scenarios.
    zdreg likes this.
  10. TheDawn


    He actually has three strategies that he employs to trade the funds. The first strategy, the "Tail Reaper" that he trades with e-mini S&P 500 index futures is what he calls an "alpha crisis" strategy that takes advantage of "tail events" profits from the increase in volatility so from the description it looks to me that's either long or short the index futures according to where he thinks the market is going. The second strategy, the "Theta scrapper" that takes advantage of theta decay. That is probably either a naked short or (hopefully) vertical spread or some kind of hedged short on S&P index futures options. And the third one, the "Chimera" which is a hybrid of the first two, is a volatility-neutral strategy. Until Jan. of last year, he was basically trading the "Tail Reaper" and after that he's been doing the "Chimera" which is half "tail reaper" and half "theta scrapper".

    The returns that you posted, especially the second returns table, it's the returns from his second strategy, "Theta scrapper". I am not sure where you got the first returns table. I am not able to locate it anywhere on the website. So I am not able to confirm the "swapping of returns" as you mentioned. The returns posted for that strategy looks reasonable and are typical of a short option strategy that does well when the actual volatility turns out to be low vs implied volatility and does not do well when it's the opposite. It's understandable that the strategy is now starting to experience drawdowns due to the increase in volatility in the market.
    #10     May 12, 2022
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