My rule of thumb is that for every successful trader (that I know) there is about one successful options trader. I know well over 100 failed traders and less than 5 I would deem successful over a couple of market cycles. Options require an enormous amount of knowledge and self control to work. (They are just a tool and not an edge as so many think.) Many lucky traders think it must be them and wham, then along comes a bear market. In any trading activity, if it is too easy, then something is wrong. As I have mentioned before in the past I had to run an R test to be sure it was me and to relax a bit more.
"does anyone know the name of the fund or the person?" https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf
One trade today. I sold to open the 15 JUL 16220C(3)/194P(2) ratio strangle with 44 DTE. The experiment is up $65.04 today. Theta is 129, delta is -75, and vega is -714. With all this stuff about Karen, I kind of feel the same way that I did when I was a kid and I witnessed the death of Darth Vader. What now? What do I do? Sure, Indiana Jones is cool, but he's no Darth Vader. I guess this is how Dorothy felt when she found out that there was no real Wizard of Oz. If only I had a pair of ruby red slippers. Happy trading! Bobby
This is a good link. The guy does a quick retest of 2014 with a fairly similar strategy, and ends up with 17% gains. His guess is that Karen over leveraged, because there was nothing special in 2014 where the strategy wouldn't have worked. http://macro-ops.com/karen-the-supertrader-goes-rogue/ Nevertheless we get these"I told you so" guys, when it was greed, not the strategy itself that screwed up Karen...
Perhaps the strategy was sound, and she goofed by over leverage. The SEC doesn't give a damn about a trading strategy as long as there is proper disclosure. This case is regarding disclosure. She failed to properly disclose how she would collect incentive fees. Then she placed what the SEC called "scheme trades" to generate the fees. The trading itself wasn't fraudulent if she didn't collect any fees on the months the fund generated losses. You can tell your hedge fund investor "I'm going to use 100% of capital to buy the open of any Russell 1000 stock that's gapped down 10% or more to capture intraday volatility." The SEC doesn't care, AS LONG AS YOU DISCLOSE IT. If you do something to lose investors' money that's outside the scope of the private placement memorandum, and you get caught, then you're screwed. That's what happened.
No, wrong. The strategy is *not* sound. Ignore this at your peril. Additionally, I'm very suspect of that backtest: 1. The TOS software is not accurate for backtesting other than EOD type stuff. It doesn't test intraday numbers at all. 2. As a result, I highly doubt it takes into account any adverse intraday IV changes which might have caused her to jump ship on huge losses. 3. On top of that, it's unlikely to even account for bid/ask spreads or other liquidity issues which will be present in high vol situations. Don't trade these bullshit strategies folks.
It is sound as long as you are aware of the risks and possibilities (of blowing in every 5-6 years). In the last 10 years only one year, 2008 would have caused a loss for this strategy. If you don't believe the backtest, how about the forward test with real money? For the last time, the Yahoo boys did 18% last year when volatility was MUCH HIGHER than in 2014. So all things being equal, she should have made an easy 15-20% in 2014. (according to her interview, she was already up 11% I think by August) The only explanation is that she over leveraged. By the way one of the SEC complaint says she was down 44 mil at the beginning of this year. If she had 200 mill AUM that is less than a 25% DD (in HF world aka Tuesday), not really a blow up. Could have made it back in 2 years. I think she started the carry over of losses because of the high water mark stipulation of the fund, she wouldn't get paid until they make the loss back. She didn't want to work for free for 2 years... Probably she would have to pay the workers out of her own pocket. But anyway, if you don't believe the possible returns in a non-remarkable year, just follow Bobby running this journal.