Why Karen the Supertrader Lost Millions

http://www.sjadvisor.com and http://www.sjoptions.com provide an in depth analysis of Karen the Supertrader's short strangle strategy. We review this risks of the trade, the Greeks and higher order Greeks, margin fluctuations and volatility risks. The video in no way accuses Karen of any wrongdoing. We personally feel Karen is a victim of the industry for many reasons. Watch this video and learn more about the short strangle and the true risks involved. Attend our free live events: http://sjoptions.com/events More free options trading videos: http://sjoptions.com/tour/free-options-videos/ Follow Us: http://www.facebook.com/SanJoseOptions http://www.linkedin.com/company/san-jose-options http://www.youtube.com/user/sjoptions SJ Advisor for trading groups, hedge funds and advisors: http://www.sjadvisor.com

Comments

1. Thanks for the info. Geez, Karen must have been totally asleep at the wheel suffering such a loss at the end of the trade without realizing what was happening. I've been in the options market for many years. Most of my trades are selling short term puts, calls, and straddles (three weeks or less), in stocks and both regular and inverse ETFs. I also don't trade in margin.
2. Just sort of fell into the tastytrade video promoting her and it had a disclaimer added to it about some kind of trouble with the SEC. Tasty is still saying what she did was amazing. I say that anything that sounds too good to be true most likely is not true.
   
   The average retail online education experience does not include vomma, because I never heard of it til you mentioned it. What I will say is that unless you are running the casino you dont have all the information on risk that they do. The idea that they are going to be nice about a margin call sounds like someone is suffering from wishful thinking.
   
   I read something about Anne Barnhardt and cattle futures, where she pulled out of her broker trader business because of problems she was experiencing. Something about a guy named Corzine and the MF Global scandal, who got caught short and they froze up an account with billions at stake. This account had other peoples money in it that got frozen and they could not liquidate their positions either. My point is that when things go the wrong way, the first people who will protect themselves is the broker dealer market maker.The ones who hold the money will sacrifice everyone else first and worry about the small guys later. They are their own best friends not yours.
   
   If you read this may I ask if there is any way to run this trade safely? Like with normal 1% allocation, deviation and duration?
3. Tastytrade does not have access to her accounts
4. Karen did not trade according to Tastytrade methodology. She has been interviewed by them multiple times, but they do not trade or promote her style.
5. TT is given a misconception to the people that you can be easily profit by selling high volatility option. They did not mention that there are reasons for option volatility to stay high and it can go higher or lot more higer. It did not mean option is expensive for you to take advantage of.
6. 300mill gone
7. Awesome video
8. Wait a sec - she posted losses because her positions suddenly went in the money. Instead or realizing the loss and reporting, she left the position open and opened fresh positions in new front months and pocketed her fees. That is fraud.
   To be fair, naked short calls are brutal if crossed, on the other hand cash secured puts OTM is really the only way to play Options and win consistently. So a short strangle is dynamite just waiting to explode.
   With 250Million$ why didnt she trade what she had, why margin all? She could have easily delivered a 15-20% return safely.
9. Hello, I'm from Ukraine, I can say that the last 4 quarters theory Karen works for gold is quite good - only to sell the necessary options in the money or near money, and not for 56 days, and priblizetelno 45 days of expiration the same dollar is not strange but the dollar big influence on the gold price. But certainly in the sale - a big margin and accordingly the profit is not much - about - 5.10% in the quarter can speak, but about 100-200% of course not. In general, how much you considered normanaya profit - we are trading in stocks with leverage of 5-10% per month is obtained.
10. Congratulations on posting an honest video about one of the pitfalls on trading options.
    Less people think , they go do the opposite strategy, beware. If you are in a profitable trade,and you want to sell to take your profit, good luck. You will not sell your position anywhere near what the platform says it is worth. They will stonewall you for days if necessary,, until you are no longer in the black. This game is played like heads they win,tails you lose. Thanks again.
11. Great review of how Karen the "not" supertrader tripped up. Thanks for the wonderful illustration of how margin calls can kill your returns and your business.
12. Sosnoff, another Democrat fleecing the down trodden. I saw that interview and knew it was a sham, starting with inflated returns, etc. Accident waiting to happen.. Oh and backtesting does not work, it in no way predicts when a trader will puke and take a loss, or small gain, when at expiry it may end up a winner after taking a loss.
13. Vega is more important to understand which affect the delta of the option. If the big vega is negative there is a big drop in delta value. make your option worthless, Good for selling option if Vega is a negative value.
14. During your analysis, did you take theses options to expiry? As traders, we take quick profits, generally don't hold until expiry. When there is profit we take it. We trade volume not Max. Profit.
15. Morris: What are your thoughts on using Double Calenders or Double Diagonals as a hedges for SS - given the fact those are strong Positive Theta & Positive Vega strategies?
16. I'm a fan of TT and I do incorporate some of their methodology with my own accounts (e.g. trade small, but often - duration over direction & focus more on selling premium when IV is 50%+). TT are not fans of Tech Analysis, but I see value with it. I've never been a fan of Short Strangles (SS or naked puts). So in defense of TT, they strongly advise viewers to trade small (1-5% account size), hence, minimum damage- worst case scenerio. For Karen to trade SS w/ 50%+ of her fund is KRAZY. Tom & Tony would never encourage that.
    
    U do have a valid point about TOS had to know about her losses early on, since she trades with them. Maybe TOS looked the other way since they were making a fortune in comms (50K trades per yr)from her. Her bubble has been busted. If Karen can lose big time with SS, the little guy doesn't have a chance. Teaching moment for everyone.
17. Sounds like it was irresponsible money management - trading too big. She could have sold defined risk 1sd strangles and thus fixed a lot of margin issues. When rolling for time or credit or adjusting in general, NEVER increase risk!
18. I have one serious question - just asking:
    
    I have not done the backtesting using tt's rules - they have and you say you have. Both of you used a similar time frame: some 10 years or so, definitely starting before the eve ot the Lehman crisis.
    tastytrade claims that the strategy is a winner. They do not post an overall win, but an average P/L per trade and max loss. Their positive number of average P/L must mean a total profit, otherwise the average per trade would have to be negative. Now you state that the same strategy loses money. So are you saying that the tastytrade backtests are wrong? Or what would be the difference between what you do and what they do?
    
    Thank you for your answers.
19. I can't say exactly where it was said. According to other analysis, Karen closed trade that was getting close to the put strike price early in panic. If she were to kept the positions, she would have profited. A key weakness of Karen: She wasn't skilled in analyzing support and resistance. Thus, when the price went down and the volatility rose, it looked like the position was losing values fast. Or perhaps the broker either closed the trade or her people closed the position when told to by the broker when the value of the position went drastically when down. After all, she usually trade 2 standard distribution from the strike price at the beginning of the trade. All of her positions were still out of the money and could have made money.
    
    I myself do bull put spreads. Few times the broker closed my trades because the position was close to the money near expiration. I sometime email the broker in caps, "DO NOT CLOSE THE POSITION. I AM CLOSELY WATCHING IT." Usually, the spread expire worthless I get to keep the credit.