Pekelo Have you actually watched the video? 1. What evidence do you have that she only sold call premium in 2008? 2. If you watch first video interview at 17 mins 50 seconds, she specifically refers to the flash crash in May 2010 where she says she was 'practicing her spanish as she thought she would be moving to Mexico!' Keep on Beliebing ....
yes I watched all 3 of them and no, I am not going to rewatch 2 hours of those. You were right about the Mexico thingy, she was referring to 2010, I remembered wrong. Now how do I know she was selling only calls in 2008? Obviously just guessing, because the interviewer forgot to ask...Just by putting together what she said here and there. -she was trading in 2008 and she survived it just fine, money was coming in like crazy, so she couldn't lose that much -she made 50% around that (I might remember the year wrong, but I think she was referring to that year, which would be very surprising) -she said she is playing both sides but if there is a trend, they might just use 1 side -she said she likes simple things and once something works she sticks to it. So if you put these all together, she either made 50% or at least some relative decent return in 2008 using the same strategy what she used when the "light bulb went off". Since the market was heavily trending/falling in 2008, the only way she could have not lost a shitload if she was only playing one side, or maybe she is the master of adjustments... Maybe she closed the put sides quickly and let the call side to expire... Anyway, that's why Sosnoff should have asked about it, because that is the most interesting part, how the strategy works in a very trending market.... -------------------------- By the way, if we compare the 2 years, the absolute movements are pretty similar. The flash crash was less than 100 points and in 2008 the biggest daily movement was just a bit more then 100 pts. So if she survived one, her strategy should easily survived the other too.. The meltdown didn't come until the end of September, and her fund could have been nicely up by then already... Anyhow give her a call and ask....
There's a reason they skated over strategy and returns in 2008 ... but I can't for the life of me work out why. It wasn't the one day falls in 2008 that hurt ... more the SPX fell 50% in pretty rapid order ... just try rolling / adjusting in that market on the kind of leverage she was using .... Better still ... have a go yourself .... the market is the best teacher there is ... but the tuition fees can be expensive ...
did the money come rolling in during 2008, or after? Money coming in diluting losses, and rolling, when and if you wanted with larger amounts, ie; selling traders 2 further OTM, and buying 1 less OTM might have had some favourable prices, particularly if you are active, slightly savvy and the fact that she was selling short dated 10% approx downside. Combination of luck and skill. I can see how she might not have been too hurt.
A good summary of her strategy, although the blogger is wrong on her doubling her fund several times. That didn't happen, at least not by trading: http://www.optionstradingiq.com/karen-the-supertrader/ Read the comments, one of them: "Simple. She has customer portfolio margin and sells short strangles. The margin required is much less than for Reg T accounts. Her magic is in how she manages the positions and her position sizing. That's every trader's edge...if you can exploit it. This is the part she holds close to the vest but most can guess at least some of her tactics." Another one: "Karen is on Portfolio Margin so her reduction in BPR is much much less, almost a third of that amount. My fund trades this strategy as well, however, I only risk 10% of my account on this strategy because as the positions move on you, the margin requirement expands, sometimes 2 or 3 times. " More: "Karen trades what is sometimes referred to as a "mean reversion" strategy. After a sustained up move, the likely future direction is down and vice versa. She probably doesn't sell calls on every up day or puts on every down down. Rather, she probably waits for an extended move in one direction before placing her trades." This last one can explain how she can avoid a really big loss. If in 2008 she was in cash on some of the biggest moving days and/or just let her calls expire, that explains how she didn't blow up. She also could have reduced size, when volatility got crazy... ------------------------------------------- After rereading my #48 post, the 50% return on the 100K of her own money refers to 2007.
Couple of links with interesting related reading for the weekend, always read the comments if any: Her fund info: http://www.nfa.futures.org/BasicNet/Details.aspx?entityid=9VPANMdQyO8= Explanation and discussion of her strategy: http://smoothprofit.blogspot.com/2012/11/a-glimpse-of-option-strategies-of-karen.html "The reaction to the flash crash of May 2010 was discussed in the video. My summary of the discussion is: Under extreme market sell-off conditions (1000 point drop in DOW JONES average), give up profits of a few month to roll out a couple of months and wait for market to settle down." http://www.trade2win.com/boards/futures-options/166840-karen-supertrader-story-legit.html Study group of her strategy: http://groups.yahoo.com/neo/groups/supertraderkarenstudy/info Her using portfolio margin (making a huge difference): http://smoothprofit.blogspot.com/2013/03/super-trader-karens-portfolio-margin.html "Using this criteria, the Karen strangle shown below would have a portfolio margin of $3838 vs Reg-T margin of $25,283. What a difference! It bumps up the ROM dramatically, even if the minimum price changes are set as 10% to upside and -15% to the downside..... I believe Karen had complained about a sudden (No advanced Notification) margin requirement change by TOS which resulted her largest loss ever. This margin requirement change she mentioned was very likely to be related to portfolio margin "minimum" stress test I believe."
The very best summary I have found: "She is employing a simple strategy that has a great probability to make money, but at the expense of being exposed to a black swan event. My guess is she's done everything she can to make this strategy survivable and accepted the fact that someday it can blow up. 1. Spread your bets among as many products as you can that are correlated, and have great liquidity and volume so you have a chance to escape a black swan. (For example, your ability to get out of your SPY, RUT, and NDX positions will be 3 times a single SPY position because you only need to move 1/3 as many shares). 2. Establish a 50% cap, ensuring that only half your account is tied up in positions/margin in case of an emergency, and the other half is available. 3. Establish parameters for what % below that cap you want your existing positions to be under predefined conditions. I doubt very much she always has 50% tied up, that would be suicide with this strategy. 4. Set up some rules for amputating your limbs if the market begins to move against you. 5. Hire 6 guys you trust to watch the markets 24x7 and execute these rules. 6. Pray a flash crash doesn't happen out of the blue that can't be escaped, or that your rules have reduced your position so far before one hits that you survive. Summary: Adopt a dangerous strategy that ensures a good steady cash flow and play as conservatively as you can to ensure you can milk it for as long as possible. My guess is she's got a first out the door plan and isn't afraid to give up profits to get out first. Let's face it, most of the biggest winners in history made it big because they were both ballsy, AND lucky enough to employ the right strategy at the right time. Smiddywesson" Note: The #1 point is not valid anymore, Karen trades the SPX options exclusively...
One more thing she mentioned: "last year sell two puts longer out for every one call". That to me is trading directionally (positive delta, negative vega) in a one way market. I think there is more behind what she is doing than just selling strangles. Speaks to what a lot of smart option traders say on this forum, you have to make some type of bet (directionally, volatility) to have an edge in options.
guys. i will open a new forum post. but let me post here first... simple premise. we know she will blow up one day. .Qs is how to take the opposite positions of that. and i read one example.. someone had to close a SPY put which gave him 100$ for 17K. in Oct 2008.. so we are looking for long shots.. many smallers ones will come across.. edge would be to consistent drain the KAREN type premuim sellers. by selectively buying puts and calls based exactly on the strategy.. whoever solves this puzzle becomes the next multi millionaire.. One thing in AKSTS "ANTI KAREN SUPER TRADER STRATEGY" ( yes! i just coined that acronym) is now TIME Is on our side... the longer the damn FLASH SWAN CRASH doesnt appear, the healthier it is for us.. This is better than buying Powerball lottery tickets. see this chart http://www.trade2win.com/boards/att...aren-supertrader-story-legit-trending-101.png ANOTHER point to note.. dont worry about the call side... YOU will never wake up one day and see Market GAPPING UP 10% in one direction but PUT side.- definitely gonna happen. in some shape/form/degree.!! look at the chart . the Xs is what we will hunt for .!! may be if Karen's team is reading this, why dont they , themselves(since they know when to reduce or come out of loss making postions) with an uncanny success rate, they should flip their short to long puts. ?.. maybe the mindset is not there - your brain just wont allow you to ! been conditioned too long in one direction. SELL SELL. dont buy.
This is classic double speak .... "Give up Profits of a few months" .... she just can't bear to mention the word LOSS What she is trying to say is that she got hammered so hard in May .... incurred heavy losses ... and in order to recover the Loss, had to Roll Down and Out a couple of expiries. It is a perfectly legitimate approach to roll up /down / out ... she just doesn't want to acknowledge the reallity that there is a loss in the month when you roll ... which maybe recovered over time. Gotta wonder why the guy doing the interviews reckons she trades on crazy leverage ...