Neiderhoffer

Nice post.

Agreed, but look at Brian Hunter @ Amaranth. If you use responsible strategies you won't get any funds to trade, OTOH, run crazy strategies, collect crazy fees for a few years, and then blow up. You're still better off.

I dont think VAR, etc quantify risk very well and that is what I think most investors don't get, what level of risk they are taking to get those returns, or even worse, taking excessive risk for low returns (read as people getting money market returns with potential to lose everything).

 

The increase in req was damaging, but his puts ~tripled in value. It certainly wasn't prudent to go all-in on initial req.

 

i'll defer to you as much more knowledgeable than myself in the derivative market--- do you think it was fair or proper for the margin to be changed when VN had the positions open? is this the risk one takes??

surf

 

Nobody should be faulted for missing the exchange req increase in their model, but the CME does it all the time when vols exceed 2 sigmas. It's to maintain a liquid clearing corp, not to phuck the put sellers. Without it, a lot of clearing firms would've gone under on this move.

I don't believe Vic modeled anything beyond his initial req. No need if the market continues to rally. Unfortunately, the initial req exceeded 30% of his AUM. FWIW, I was disappointed to hear Vic did it again. He has mentored many superstars.

 

It's a scenario he should have thought about. This isn't some kids game -- your playing with millions of dollars of other peoples money.

There were many clues that danger was in the air -- yet he's all in -- with no money on the sidelines to act as a buffer?

What the fuck?

 

Anyone knows the annual return?

 

From the New Yorker:

"Later in August, after the Federal Reserve cut the discount rate—the rate at which it lends to banks—the markets calmed down; but Niederhoffer’s woes continued. In September, he was forced to close two of his funds, including his flagship, Matador, which had declined in value by more than seventy-five per cent. After cashing out many of his investments, Niederhoffer repaid his lenders and returned what money was leftover to his clients. He laid off several employees and consulted with his lawyers. Meanwhile, rumors circulated on the Internet that, for the second time in a decade, his funds had “blown up.”

Marketsurfer, are you saying that the >75% drawdown that Matador incurred did not matter and that Vic shut his funds because of margin requirement changes?

 

Is it just me or does the trading depicted in the article seem rather amateurish for someone in his position? I can understand a cowboy trader who is just speculating with the small agressive part of his own account trading like that but not someone trading millions of OPM? And to be giving an interview on a day like that? If he isn't already finished from the perspective of investors surely his trading in that article will be the nail in the coffin.

There has been a lot of talk about how sophisticated his methods are but I just don't see it in that article. I feel sorry for the guy that he has to go through this again but am also very surprised that that is how he was trading and that he left himself so exposed to a move that could be and was predicted by many. It is also surprising that having margin requirements be raised came as a shock to him if what has been written is to be believed. Pretty much anyone who has been trading as long as he has should count on margin requirements being raised at the worse possible moment for your position which is why people who don't want to blow up or be forced out of a position either hedge their positions or don't employ so much leverage.

It all smacks of a guy who thought he was smarter than the market and could take the all or nothing approach making some wild bets because he was smart enough to get out in time if things startedgoing wrong. Having read the recent Simmons interview I find it interesting that Simmons seems to have evolved from that wild discretionary style backed by a simplistic pseudo quant edge to more mechanical and robust quantitative modeling where as VN seems to have not made that leap forward and is more or less stuck in the same mentality that Soros recognized decades ago as being dangerous.

Some free yet valuable lessons here for the rubberneckers.

 

Vic should have had as much margin as each option would need as a futures position. What if OTM became ITM?

You seem to think serial overtraders like Vic should receive 30% returns without risk. Wow, where can I get some?

Do you know why margin was an issue with Vic? Because if he wasn't leveraged like a wild man, his returns would have sucked.

 

That's somewhat contradictory Atticus, as you acknowledge it is nothing new for exchanges/clearing firms to raise margin requirements as volatility increases. To make a large bet on the continuation of low volatility and not take in to account the possibility of an increase in margin requirements should the bet move against you is to ignore a foreseeable risk to the position which will likely materialized and force you out of the position at the bottom of the move.