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Karen The Super Trader?

Discussion in 'General Discussion' started by will, Jun 2, 2016.

  1. will

    will Well-Known Member

  2. Paul Demers

    Paul Demers Well-Known Member

  3. status1

    status1 Well-Known Member

    That's interesting Although it would have been more interesting to find out where the trade went wrong
    I am guessing it was a sizing issue The bigger the bet the bigger the loss It's kind of hard to hide 100 million in losses
    If she only had 100 k in losses she would have been able to manage it better
    Just an opinion
     
  4. AKJ

    AKJ Well-Known Member

    Boomer34 likes this.
  5. Boomer34

    Boomer34 Well-Known Member

    That is a VERY good article.
    Thanks Andrew!
     
  6. N N

    N N Well-Known Member

    Shocked but not shocked. I was initially very skeptical but after seeing her pop up so many times I figured she was just very good at 'front running' her deltas directionally. I guess not.

    Just goes to show you, skepticism is valid. Kudos to those that share real-time P&L as that's really the only way to validate a trading strategy.
     
    Norm likes this.
  7. status1

    status1 Well-Known Member

    Thanks for the explanation
    I figured it had something to do with sizing since the trade itself did not seem to be a problem the way she described trading it I guess it's not easy to scale up to that account size
    One thing is not clear is why she had to hide the losses Was it just greed to get the fees ? She could not get out otherwise ?
    Also what was that about buying in the money call options ? Wasn't she only selling options ?
    I am not sure I understand how buying in the money calls would offset any losses
     
  8. Paul Demers

    Paul Demers Well-Known Member

    My thinking is that the fund had a high water mark. So they would not have been able to collect any fees until all the losses were recovered. So if they didn't book the loss and only the gains then they would be able to continue to collect performance fees. I think I read that they collected about $6 Million in fees from 2014 to last week.

    "67. These Scheme Trades often involved (1) selling call or put options on futures that would expire at the end of the current month (“first leg option”) and simultaneously (2) buying call or put options on futures for the same quantity at the same “strike price” that would expire early the next month (“second leg option”)."
    This is from page 17 https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf
    This was a pairs trade where the losses in one option would have been offset by the gains in the other. In effect it appears that in the end they were just trading to manage the unrealized losses.
     
  9. Boomer34

    Boomer34 Well-Known Member

    If everything in that article proves to be true...and old investors profited handsomely at the expense of the newer money...she and whoever else was in the cirlce should be severely punished. Greed will get you every time!
     
  10. AKJ

    AKJ Well-Known Member

    So if I understand correctly, by selling a DITM option on futures, the entire premium collected is a "Realized Gain" when the option expires and the futures position is assigned? And then the futures position, as soon as it is assigned, has a huge unrealized loss (because presumably you were assigned it a much higher/lower price than the current market). Just mind boggling. Happy that the SEC intervened.
     
  11. Jonathan

    Jonathan Active Member

    First Billy Walters now Karen the Supertrader....it's been a hard week for heroes of speculation. All we need is Victor Niederhoffer to blow up again.
     
  12. status1

    status1 Well-Known Member

    What I don't understand is why she got involved in selling DITM futures?
    I mean up until recently she was only selling OTM naked options
    How or why do you go from selling OTM that has worked so far to to DITM ? It just doesn't makes sense and especially for someone who has been trading for so long Hiding the losses is one thing but selling DITM that's just compounding the problem There has to be more to the story
    Maybe Tasty trade can do another interview to find out what exactly went wrong after the SEC is finished with her
     
  13. will

    will Well-Known Member

    I think she was just selling them to make it look like a gain. Wasn't reporting the loss when she bought them back. That's what I gathered. She had already lost a lot of money at that point with her strategy. She was just trying to collect commissions on gains she didn't actually have.

    Sent from my SAMSUNG-SM-G870A using Tapatalk
     
  14. SnakEyez

    SnakEyez New Member

    I remember spending alot of time studying her strategy and some have even modeled it. This seems to be a case of over-levarage. Portfolio Margin is a double-edged sword, and sometimes the leverage opens up to martingale style investing. . . or even revenge trades (such of the 7000 /ES futures). Her strategy probably would have worked with proper risk management and setting expectations with her investors. It looks like she caved under the pressure.
     
  15. AKJ

    AKJ Well-Known Member

    I think this is what she was allegedly doing.

    Sometime in May
    -suppose June ES Future is at 2100
    -sell May ES 1900 Call for 205
    -buy June ES 1900 Call for 208
    -combined, you collect 205 in premium for the May call and pay 208 in premium for the June call

    Expiration of May call
    -suppose June ES future is still at 2100
    -the May ES 1900 Call expires and results in the assignment of a short ES futures position.
    -according to the alleged accounting method that was used, the $205 collected for selling the May call becomes 100% realized profit.
    -The new short ES futures position has a cost basis of 1900, and with the future trading at 2100, immediately has an unrealized loss of $200.
    -suppose the June ES 1900 Call is not trading at 205. This has an unrealized loss of $3. This position serves only to reduce or eliminate market risk while the rest of the machinations are allowed to inflate realized profits while artificially creating large unrealized losses.
    -Allegedly, Karen's fund was determining the incentive fee allocation based on the realized P&L ONLY, so the $205 in realized profit from the May ES 1900 call goes towards the calculation of the incentive fee, while the unrealized losses on the assigned ES future are not considered.
    -For this to work over multiple months, you have to continue increasing the size of your positions.
     
  16. status1

    status1 Well-Known Member

    Wasn't she saying that she had some 6 traders watching the market all the time ?
    What happened to them ? Didn't they see what was going to happen ?
    Did they all agree with this strategy , where they overruled or she decided to do this all by herself without the others knowledge ?
    Just curious
     
  17. Paul Demers

    Paul Demers Well-Known Member

    According to the complaint :
    64. Hope employees maintained a spreadsheet that tracked, month to date, the realized losses of the Funds
    65. As the end of a particular month approached, Bruton would ask Hope employees for the amount of the Funds’ net realized losses month to date.
    66. Bruton would then either enter a Scheme Trade herself or approve Scheme Trades that the other traders proposed and entered.
     
  18. Boomer34

    Boomer34 Well-Known Member

    Just dirty...
     
  19. Scott Slivnik

    Scott Slivnik Well-Known Member

    If Karen Bruton would have charged a 2% asset management fee, she likely would not be in this situation. If the accusations are true, she mostly likely would not have made $1 since late 2014 if the performance fee was properly calculated based on the high water mark. A asset management fee would keep some money coming into her pocket and her charity.
     
  20. ACS

    ACS Well-Known Member

    Pretty bland dissociative statement on the TastyTrade blog.
     

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