What hedges are you referring to .... She trades naked options, no hedges, never gives back premium ...
Yeah, I agree with you & Rimes on this one. I tried naked selling once, quickly reined it in when I saw how margins jump around when you do that. Means you need to leave capital aside all the time as a buffer against sudden rises in margin. Somewhere around here I posted that watching the realized vol on the VIX is, it seems, a reliable way of seeing when strategies such as this are in real danger. When it goes over its long term average (around 70%), rein it in.
In listening to her, she doesn't hedge but she does buy back her shorts when the delta gets to 30 and rolls down. She stopped using longs to offset her risk in 2008 right before she upped her size.
http://www.youtube.com/watch?v=5hbj_YyM42M I drive that road every time I go from Myrtle Beach to my house in the Poconos. It's dangerous. Should I stop driving it? I can't and still live my chosen life. A number of years ago I was driving on the Schuylkill Expressway in Philadelphia at rush hour after working an over-nighter at Lankeneau Hospital. Every body was doing like 70 and cars were a few feet apart. Somebody way ahead of me made a mistake and the pile-up started. I jammed on my breaks and was able to stop without hitting the guy in front of me (I had left a little space). I looked in the mirror and saw a semi coming at me from behind and jumped my car forward about 10 feet... it was just enough so that the semi didn't hit me. Three people died in that crash. I didn't stop driving the Schuylkill. I couldn't and still live my chosen life. http://finance.yahoo.com/q/bc?s=SPY&t=my&l=off&z=l&q=l&c= In the 1968 debacle I didn't lose a penny. I had scaled back my liabilities and had diversified my directional risk so that I survived quite intact. (I also avoided bailing out at the bottom). Anybody who is net long now without having a good plan of protection is crazy. It may cause you to lose out on further upside but the future is written in the past. I largely do what Karen USED to do. I have longs to stop out my losses in the event of a sudden downturn (i.e. I use spreads instead of naked shorts), I vary my positions so that they cancel each other out (somewhat) in the event of the market taking a sudden jump in one direction or another, I do individual stocks in the hope of skimming the most crash resistant out of the S&P, I am trimming my downside risk AND I am thinking about a downside hedge. Life is risky. Eventually we all die. Stringing it out as long as you can is or is not a good idea depending on your viewpoint. My older sister passed away this past year from lung cancer. She smoked for many years. So she lost the 'last of life' for the enjoyment of smoking. She had no regrets. The 'last of life' is not all that great anyway. Afraid of risk?? Don't trade the market. Put your money in doubloons and hide in your cellar.
Actually to be perfectly honest with you, I would not have a clue on how to hedge bets like that. However I would have to believe that she has determined some exit strategy that allows her to stay alive with a little bit of money if the ES opens 50 points against her one day.
"The main risk on these strategies in not really jump risk, but rather margin risk - it's not likeley you going to see any of the options pay off, but it's possible that you see the margin double or even tripple during the life of the trade due to vega and cross-effects." This is the risk. My margin use went up by 50% in each of the 2 days that the market went down just 2% this year. Had to buy some stuff back (that would of course be worthless eventually) at bad prices. What if the market went down 5% in 1 day, I would have been totally screwed. I have scaled back this strategy drastically to accommodate the margin use and now focusing on other uncorrelated strategies.
Wrong , its not important if X trader is now profitable many traders are , infact more than 30% of retail FX traders are profitable in a certain Q , but they key word is "consistency" that's what matters , and frankly even if you use martingale strategies you will be quite profitable for some time until ... ?! Bottom line all we see about her here is just word of mouth , so i wouldn't even say she's profitable , where is her verified track record ? does she even trade ? what's her max DD , sharpe ratio .... etc . The problem here isn't in a 200 SP points gap risk no , just a normal bear market with some volatility will do ...
What if you hold a house and the market crashes 70%? Better live on the street just in case! What if a car hits you when you walk accross the street? Better move to the middle of the desert, maybe then you can finally be safe from those damned black swans! Life itself is inherintly risky and full of black swans. Markets are no different. But markets, to a large extent, price in that black swan risk. When you sell an option, part of the premium is from taking on that risk...
Your examples are irrelevant here , as i said earlier just a normal bear market with some volatility will do , if she or anyone want to make money that way or by trading martingale strategies and high win rate strategies then that's fine , everyone is free to do so , but please don't tell me that she/he is a great trader , amazing trader , super trader .... etc .