destriero, this in no fraud, rolling is exactly what you can do. If you have the capital, which she did, you can roll knowing markets will rotate. If you have no idea about market movement then you don't understand this. But this was clearly part of her strategy, she didn't just lose control and go wild. It just takes steely nerves to not attach yourself to the current loss and continue to trade and focus on how the markets move. Bravo to her. I don't know, but she probably ran into a communication problem with unsophisticated investors.
What "Karen Bruton" did was illegal. She should have done time. The school marm BS was a nice ploy... it helped to keep her out of prison. A legitimate roll (albeit disallowed) is a form of shorting against the box. Say you're long a bear put diagonal in Mar/Jun 2020 and you're up 30% and you want to book the gains but you want to defer the tax to tax year 2020 (April 2021). You trade the synthetic which is the bull call diagonal and arb the position. The sole purpose is to defer taxes and therefore would not clear an audit. No different that shorting the (deferred) synthetic against long natural shares. Legitimate premise, but illegal. Karen was hiding massive losses. Fraud.
That is as far as I got, on box talk. Sorry, I am feeling pervy. In fact, that box talk was so provocative, I need a cigarette.
Dude, I've busted major OTC dealers (Oanda, Trinitas Capital) in digitals, lookbacks and other 2nd gen exotics. She added/reduced zero exposures other than crossing deltas which means she was simply adding duration.
Can't believe I read through the whole thing. I have way too much time on my hands. Sorta funny, I came to ET because I was doing research on a Project of Jack Schwagers, and ET came up in a Google search. Then ... somehow, I completely and totally fell down the rabbit hole. You have numnuts like the destriero jackass ... who wants to comment on Rolling and Defending a position, when he doesn't understand it. Others won't read fully what someone else wrote, and then jump the gun and go to a conclusion that was covered three times. Others want to comment on something with a wild conclusion, when there is no possible way they could have the data to support their conclusion. The worst offenders, are those that have figured out one, maybe two ways to trade, and think "they know it all", and then critique every other trader they hear of. "i R A TRAdEr" is the way I've referred to that particular phenomenom. And then I'm the biggest moron of all I think, because somehow, I sit here, tangled up in this nonsense, when I should be testing some 1st Quarter 2009 data on a Saturday morning. Regardless, on this issue, I found myself agreeing with qlai in sentiment, for much of the thread. Does Tom profitably trade? Obviously. What he does, is what I have long referred to as "trade big book". At least, his method is sound, and that method is sound. His P&L I haven't seen, nor do I really care. Nor does it matter. The idea is sound. Trading, as I call it "Big Book" is obviously profitable. In other words, you make scores of positions. Your edge does not come from any entrance or one overlaying assumption on the market, but you end up being long and short many positions in differing periodicities with differing strategies. It's pure Game Theory. By definition, it allows you to score through Iterations of trades insanely quickly. In 8 days? You've almost gone through one iteration. You're going to have big losers. Big winners. And hopefully, within one iteration, the middle will skew you towards positive return. That's what's going on mathematically. And if it doesn't skew you towards profitability? Since you have some many positions on, you can get to your next iteration, again, very quickly. He's basically 'cultivating' his alpha and beta among a large "field" of positions. Wonder why he got "Portfolio Beta" into his platform so quickly? Think about it. What if you were long and short, 50 different positions? And you could just pick off the worst losers and try to 'cull' the whole herd towards even 200 BPS in a short amount of time, and then wean out of the whole, and start a new iteration. Again, Game Theory. The addition of positions / entrants / binary contributing stimuli ... however you want to refer to them ... dilutes those single entrants volatility metrics, up and down. Also by definition, it's going to mean you have to have a lot of Capital to do it. Also by definition, it's going to mean that although you can be profitable? You're going to have big losers, which is what the numnuts always focus in on. Binary events, that in the grand scheme of things, mean nothing. Which has always been my biggest complaint about Tom. He thinks he can turn everyone into traders, and to trade the way he does. That's silly. People do not have the Capital he has. People do not have the experience he does. People have jobs. They can't sit there, and monitor 58 different positions during their work day. The return on effort is awful. But does it work? Oh yeah. Tom's not the only one to do it. I know scores of guys in New York who do the same thing. It's Portfolio Management 101. But saying "That can't work"? Just makes me believe that someone doesn't understand the mathematics of all forms of trading. As far as "Karen"? I know and understand what drove her to do what she did. Would I touch anything she is doing, or have her anywhere near any of my interests? Heheh ... uhm. No. And while I do admire what Tom is trying to do, and respect him? If he has her on again? After an acccounting problem? My estimation of him drops. Dramatically. I read the brief when the whole thing happened. It was inevitable. And if she's still levering up on OTM Premium to sell? She's going to run into the same issue she did before. It doesn't even require a massive fix. As I said in another thread (and will get into somewhat below), the trick is always attracting capital. She could fly the flag of something culled down of what she was doing before? But once they pick up the phone or are otherwise talking to her? They find to get THAT product / program, they by necessity HAVE to be involved in another program, that is non-correlated to the first Program; but married to it. And thus the risk is mitigated. They in essence, get 'tricked' into a good performing program; by advertising a linear program with greater underlying risk. Once they find that out; they are already in the door ... and it's just about closing them. Even then, I'd have nothing to do with her. And when you try to attract Capital? People DO things like that, because people are generally ignorant of how returns work. New Traders, Aspiring Traders, High Net Worth Individuals ... the Public at large? I would even say Regulators? They may understand basic accounting, but they ... DO NOT UNDERSTAND HOW PERFORMANCE WORKS OR EVEN WHAT GOOD PERFORMANCE LOOKS LIKE. And for QEP's, Accredited Investors, that's the very money that a Trader who trades OPM is looking to attract. There have been threads I've seen around ET and commenting on of people asking if 100% and 200% returns are sustainable in perpetuity; and that sort of nonsense. The public at large believes the same sort of lunacy. And they you have to try to not only attract that money? But make it "sticky" or "sticky with you"? Then it leads people do try to appeal to that sentiment. "Gee raVar ... you say you are good, but phhfff, you have a month you reported a +1.25% month, a +2.2% month, a +0.10% month ... and then a -0.65% month ... and I know a guy who read this article from a guy who knows the person who says he knows a guy who can do banillion % a month!". Mind you, the SAME jackass, culled his own account by taking out $25,000 to buy a small fishing boat, and he wonders why his overall portfolio volatility is increasing; despite being given a d-doc that explains that very phenomenon! And that whole dynamic leads some people, to do stupid things. Here's the really ironic part? Because people do not understand how performance works? That's how she's able to raise money again. I can't tell you the number of times (Niederhoffer being only one example), I've seen a Manager completely blow up a Fund. Only to have people turn around, and fund them for another $50 M Trading OPM is about knowing how to grind ... and grind like a mother (as is trading in general), and have the right clients or capital partners. People who understand how good performance works, what it looks like, and understand accounting. Heck, one of my Capital Partners has his Masters in Accounting, and has full access to the books of the Firm at any time, as well as Brokerage Statements. So you don't have the conversation to begin with. IF half of what I read in the brief is true of Karen? It blows my mind that Tom would have her back on. But then again, while I admire bluntness? Tom's ego is a bit much, even for a guy as cocky as me ... in that he think he can turn "everyone" into a trader that does what he does. But people do stupid things. And a rule that I have always followed since ENRON, and has served me well? Is that if there is ANY INDICATION at all, of Accounting funny business, either in a Public Company, Business, Partner or Firm? Your general reaction should be ...
One half of rolling does. Rolling is a two step process. Actually? Two step process, with another aspect. The court disagreed, not because she rolled. But because she hid being underwater, during roll periods on her net liq. Or maybe it was that she was pulling out theta and juice with DitM strikes, but only was reporting the credit, not the net liq. Same sort of thing. THAT's what the court had a problem with. And she did that, maybe not even because she wanted to pull the fee (she probably fooled herself easy enough with that one) ... but because when you trade OPM, you want to put a 'pretty' number in the end of the month grid, to attract more capital. It's just my personal opinion ... but I would wager THAT is what led her down that path. That ... and the belief that her 'math' would turn around before anyone would notice it. But as I was saying, every option trader and their brother rolls, and it is a TWO step process with an aspect being necessary to do it. 1) Lock in the loss. 2) Sell out more theta (lot of underlying variable's here, according to the state of the greeks at any single moment in time) that recovers that loss, and maybe a little bit more. Which requires another aspect ... ... Having the capital to do roll, at times, almost indefinitely, because your math looks a little something like this, depending on what Delta's you choose ... Of course, that's not the entire picture of what any one strategy should do, simply due to fat tails ... but that's the nuts and bolts of rolling. Locking in the loss is only one step in the process. And there is nothing fraudulent in that process. Selling more premium, working that math, and HIDING the underwater portion from clients? Yeah ... that's fraud.