True, the risks of maintaining a position with an initial req of >30% of your AUM. Obviously, at least a delta hedge would be in order, unfortunately, that's a 4500-lot in ES at 15xx [(15k lot * 6D)*5]. I would be more concerned with my various vega and gamma moments than an arbitrary raise in haircut. If Vic had mastered exotics this would all be moot.
Plain and simple, in the derivatives market, the margins can/WILL be adjusted. You have to plan for it in your 'assumptions'. I'm on my way to bed, but when I get on the floor tomorrow, I'll pull out the margin rules for SPX. Someone told me early on - the "impossible" happens sooner or later in options
An initial neutral hedge of 4500 ES would result in a nearly a $30MM gain on futures when the position was dumped. Perhaps making the difference between maintaining the position and puking at the low.
I think the mean spirited critics miss a few points. The admiration for Victor that many have is not based on his having a recent hot hand. it is not based on the personal decisions he makes about with regards to the risk profile of his fund and the consequences of such. From an investors perspective, one could invest 100 in a low risk fund, or 25 in a high risk fund.. If the exposure is the same, the high risk fund is often better: from a fee perspective, risk perspective, and opportunity cost perspective. Victor is on of the few, true, original and pioneering people in this field who has chosen to freely share much knowledge with others. He has great generosity of spirit and is a great teacher. The aggressive posture of his fund and the consequences in times like this August do not change the fact that he pioneered approaches that have been copycatted and pirated, and to a large extent build certain aspects of the modern hedge fund industry. This is aside from the many individuals, myself included, who have carefully studied his writings and found them to be of high value. Victor teaches and exemplifies approaches that build universal knowledge aid in the development of independant, first hand knowledge.. which is critical to markets or any other dynamic field. Victor plays the game his way. He certainly could have build an institutional style fund, aimed for a bit over the risk free rate, and built an asset management fee-pig of a business. I would guess he would have ended up richer, soaking up those stable mgt fees. But, that just does not seem to be his style. Victor is an intellectual, who I guess may enjoy the process of testing the limmits of an idea more than the humdrum aspects of business, as important and critical as they may sometimes prove to be. That is his style and his choice, and I for one admire him for it.
Roy's trading style is nothing like his brother's, and his performance has been more or less flat for years. Trout started off working for Villar Kelly, and his trading, especially his early trading, shows much more of Kelly's influence than Vic's. Trout's senior thesis, which fairly reflects his first few years in the game, is straight out of Villar's playbook. Come to think of it, Crabel's work looks a bit derivative of Kelly's breakout methods and, again, bears little resemblance to Vic's trading style. I haven't spoken to Roy in years, but I know at one time there was considerable tension between the brothers.
Not even a 12% move, more like a 10% move. Pabst, you are spot on. Essentially, this is how most hedge fund managers operate. The compensation scheme makes it almost mandatory. Most managers don't risk it all on one roll though. No, brilliant post, moronic reply. The CME raises/lowers margins in response to increased/decreased risk/vol. Not a surprise to anyone other than Dr. Neiderhoffer.
a529612 was nice enough to post this article from the The New Yorker on this thread Blow Up Artist. Reading it he sounds like an extremely intellectually brilliant, physically capable, competitive, self-made man, who came from a middle class background and created substantial wealth for himself and others along the way, a modern day Renaissance Man. It's very difficult to understand how he would repeat the same type of trading errors that resulted in the incredible pain and loss of money and friends as his blow-up of a decade earlier. It just doesn't make sense. Maybe the lesson here is that trading is truly a psychological game, and a traders' true success lies in the depths of their mind. Good trading, JJ
You'd have to be insanely overleveraged, or ignoring all known measurements of risk management (even for a high risk fund) for this to matter, anyway. Not for nothing, he counsels his assitant to liquidate his position if it drops from 10mm to 5mm in the article from the New Yorker ... guess he knew his stuff, he just ignored all the rules. Kinda like riding a high speed motorcycle without a helmet, eh? :eek: Good trading, JJ
You clearly do not understand the Neiderhoffer Hedge (tm). You are obviously not on the Spec List. Here is the strategy: Sell OTM Index Puts. Hedge with LONG futures. Premises: Market always goes up Market overcompensates those willing to hold short gamma and especially short speed (delta of gamma) Market put skew overestimates the probability of a down-jump Ergo: Sell naked OTM puts A classic syllogism, like A is A. Aristotle told us so.