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SEC Complaint Against 'Supertrader' Karen Looks Like Mini-Madoff
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SEC Complaint Against 'Supertrader' Karen Looks Like Mini-Madoff

  #11 (permalink)
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rintin2x's Avatar
 
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I did quite a bit of that befire and just didn't justify the reward vs risk vs time. But what do I know right?

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  #12 (permalink)
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When I first saw the interview with her few years ago an immediate thought was "another Niederhoffer" that will blow up soon, yet the smart hosts at TastyTrade were so enthusiastic about her. Now, few years later the blow up story shows up.

If something looks too good to be true than most likely it is.

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  #13 (permalink)
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Thanks for the comments. I actually looked up to her back then and it was at the time inspirational for me. I tried experimenting what she claimed she did on sim. Back then you could do big amounts of sim trading on TOS like more than 10 million. (Later on they capped it because fraudulent options trade-education vendors were making up bogus account records of millions of dollars to fool potential subscribers) Like one of the articles show, there are massive >50% drawdowns unrealized on the fat tails. So I thought ah well, a retailer can't do this. Maybe she is managing it as she said she had staff and maybe they are watching the positions every second. I was surprised her professional accounting past would evolve into deferring shenanigans on her fund.

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  #14 (permalink)
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The saying, "when the tide goes out you find out who's been swimming naked."

Karen made her bones in a very high IV environment, back before the central banks created and prolonged this artificially low IV regime. Premium income has come down and stayed down for much of the subsequent period. Different market, different tactics.

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  #15 (permalink)
Market Wizard
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Cloudy View Post
Thanks for the comments. I actually looked up to her back then and it was at the time inspirational for me. I tried experimenting what she claimed she did on sim. Back then you could do big amounts of sim trading on TOS like more than 10 million. (Later on they capped it because fraudulent options trade-education vendors were making up bogus account records of millions of dollars to fool potential subscribers) Like one of the articles show, there are massive >50% drawdowns unrealized on the fat tails. So I thought ah well, a retailer can't do this. Maybe she is managing it as she said she had staff and maybe they are watching the positions every second. I was surprised her professional accounting past would evolve into deferring shenanigans on her fund.

What you experienced is a reasonable reaction from a person with humility who thinks that there may be something that he/she is overlooking and a "hidden" variable is there. There is nothing. It is what it is.

Just like it takes many years to develop a method, it may take an investor many years to understand all the variables that need to be examined before handing funds over to a money manager. I know a few good and ethical Commodity Trading Advisors (CTAs), but sadly all the money goes to guys like Karen. Some CTAs have a reasonable 10-15% a year track record for many years, and they have very little AUM, yet Karen gets hundreds of millions. HOW?

Anyway, many thanks to Tom Sosnoff that make such an effort to show the talents in this industry besides Karen:
https://www.youtube.com/watch?v=du3_lIrGDC0 The kid came with diapers to the show.
time 1:20 "if trading will not work out, will become a pirate" NICE! "..And I am like, cool...I can predict where this is going.."

Matt Z
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  #16 (permalink)
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I remember a thread on another forum where a member was making 10% a month. He did this month after month.

I can't remember the details but it was a multi-legged option strategy that relied on volatility staying within a certain range.

He had 100% on the line, all the time.

Of course, we all tried to warn him but actually we were more concerned with the lemmings that would follow him. He of course was full of himself, telling us we knew nothing and that his results were proof.

He was also convinced that in the event of volatility spiking him to a loss, he could "manage his way out" of a trade without extreme losses.

I believe it was over a year before he wiped his account, lost all his gains and his initial capital. He'd got the options course off the internet, made some money and within months considered himself an internet trading guru. He saw only the profits and could not (or would not) see the risks.

I would imagine this sort of thing is going on all the time. I guess some kudos is due to Karen because she had one hell of a run (presuming her earlier results were legit).

At the end of the day though, if you have it all on the line, probability says a Black Swan is going to swim along and take it off you.

A shame for her investors though. Not everyone is a trader and people just want to put their money somewhere safe. We should not expect the general public to be savvy in these matters and I think we should have empathy with those that invest in schemes like this because they trust what they are being told.

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  #17 (permalink)
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mattz View Post
Just like it takes many years to develop a method, it may take an investor many years to understand all the variables that need to be examined before handing funds over to a money manager. I know a few good and ethical Commodity Trading Advisors (CTAs), but sadly all the money goes to guys like Karen. Some CTAs have a reasonable 10-15% a year track record for many years, and they have very little AUM, yet Karen gets hundreds of millions. HOW?

I often get the feeling that investors will rather invest with the best salesman, rather than the best trader / fund. Unfortunately futures trading is also regarded as very risky, therefore convincing a client to invest with a CTA vs another fund tends to be pretty difficult.

Investors also tend to believe that volatility = risk and therefore tend to like smooth equity curves. Smooth equity curves with high yield should be a warning sign, but most investors are so desperate for yield that they will overlook that "small" problem. However, any CTA with decent risk management and a long enough track record while most likely not have a smooth equity curve. Hence, other funds will always be deemed as less risky.

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  #18 (permalink)
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grausch View Post
I often get the feeling that investors will rather invest with the best salesman, rather than the best trader / fund. Unfortunately futures trading is also regarded as very risky, therefore convincing a client to invest with a CTA vs another fund tends to be pretty difficult.

Investors also tend to believe that volatility = risk and therefore tend to like smooth equity curves. Smooth equity curves with high yield should be a warning sign, but most investors are so desperate for yield that they will overlook that "small" problem. However, any CTA with decent risk management and a long enough track record while most likely not have a smooth equity curve. Hence, other funds will always be deemed as less risky.

Whether you have a smooth equity curve or not, you need to look at the underlying strategy of the CTA, because that may reveal the "Black Swan" risk component that could potentially affect the program in the long run. Also, you have to look at material changes in assets under management as strategies that worked under small AUM may not work under larger ones.

Many of the CTAs that work with the retail guys are very approachable, and there is nothing wrong with talking to them or their staff about their strategy. Talking to them may reveal a lot about how they think of risk, and you can decide whether their view matches your view of risk. I try to talk to most CTAs or their staff (on behalf of customers if requested) about their operation, risk,overall strategy and market view. There are no gurantees of performance with any CTA, but there is nothing wrong with doing very strong due diligence for your hard earned capital.

Thanks,
Matt Z
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There is a substantial risk of loss in futures trading. Past performance is not necessarily indicative of future results.

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  #19 (permalink)
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mattz View Post
Whether you have a smooth equity curve or not, you need to look at the underlying strategy of the CTA, because that may reveal the "Black Swan" risk component that could potentially affect the program in the long run. Also, you have to look at material changes in assets under management as strategies that worked under small AUM may not work under larger ones.

Institutional allocators tend to do that nowadays. Generally, if you see an allocator you need to be pretty clued-up on where returns come from and where risk lies. Most of the time, they try and see whether adding another fund to their portfolio would reduce the overall volatility of their client's portfolios. However, I find that "Black Swan" risk is not really addressed in my UCITS world. I guess most allocators assume that since it is heavily regulated and follows a benchmark, they understand all the risks involved.


mattz View Post
Many of the CTAs that work with the retail guys are very approachable, and there is nothing wrong with talking to them or their staff about their strategy. Talking to them may reveal a lot about how they think of risk, and you can decide whether their view matches your view of risk. I try to talk to most CTAs or their staff (on behalf of customers if requested) about their operation, risk,overall strategy and market view. There are no gurantees of performance with any CTA, but there is nothing wrong with doing very strong due diligence for your hard earned capital.

I haven't needed to talk to other funds that often. However, you still need to maintain a healthy dose of scepticism when talking to managers. I have seen a "risk-reduction" strategy marketed quite aggressively, but once the portfolio was analysed, it turned out the "risk-reduction" strategy was not really that effective at managing risk. In a crash, the fund would have lost 5% less than its benchmark. Not very consoling when you expected to lose less, but were almost fully exposed to 2008's risk. Of course, the manager rated quite highly on Morningstar since he outperformed the index by a full 500 basis points.

I get the feeling we are veering a bit off-topic here. My point was more that people gravitate towards these type of managers, because these managers make them feel more comfortable. I find it sad that people get burned time-and-time again by managers of this sort, when there are several managers out there who consistently deliver good risk adjusted returns that are much less exposed to black-swan risk.

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  #20 (permalink)
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boxi View Post
When I first saw the interview with her few years ago an immediate thought was "another Niederhoffer" that will blow up soon, yet the smart hosts at TastyTrade were so enthusiastic about her. Now, few years later the blow up story shows up.

If something looks too good to be true than most likely it is.

In trading business if it sounds too good to be true then it is probably too good to be true.

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