Karen The Super Trader

Posted by OldFart on June 05, 2012 (11:24AM)

Karen went from her day-job as a CFO to a trader and turned $100,000 in 2007 into $41 million by 2011. This is her story, as told by Karen herself with Tom Sosnoff on Get Tasted. 




Posted by Alex Lopez on June 05, 2012 (03:22PM)


Pretty nice story.

Posted by Joe Greenwood on June 06, 2012 (12:40PM)

I watched the video, quite inspirational.  From what I gather, she trades mostly on SPX, RUT, and NDX.  After watching this video, I now am reading about these indexes (I am very new to this world).  I know very little about options plays, but what I do know allows me to infer she sells OTM (near the money, around 5%) put options.  Most likely there are other elements involved, and also just as likely I am completely wrong.

To be clear:  I have no current expectation to emulate her success.

tastytrade.com looks like a great resource, and Tom Sosnoff is certainly my breed of cat ........ but for now, at $90/mo, I'm not in. Perhaps tomorrow.  I think they just raised their rates x10 a couple days ago, would have been within my means at $90/yr.  And AAPL too, 8 months ago.

Posted by SunnyOne on June 06, 2012 (04:45PM)

$22K for the investing program.  Jeebs.

Posted by Rob M on June 06, 2012 (05:36PM)

Joe, the options she is selling are not near the money. They have a 5% probability of expiring ITM which gives her a 95% probability of success. They are very far OTM.

Her strategy is mainly comprised of selling strangles on SPX, NDX, and RUT.

Posted by OldFart on June 07, 2012 (11:35AM)


Rob - yes, this is my understanding, they are selling straddles, each leg 5% probability of expiring ITM. So 1 in 10 positions should run into trouble. She said something like "once I get your money, you never see it back". Interesting how they adjust the positions

Posted by The Otter Way on June 07, 2012 (11:46AM)

OldFart, will you explain your take on "Adjust" and "Never see it back" please... please... please...

Posted by OldFart on June 07, 2012 (11:53AM)


When they sell straddles, they get $ from the market. I would expect they need to return the money and actually pay more when the position runs into trouble. Somehow they avoid this acording to Karen

Posted by The Otter Way on June 07, 2012 (12:04PM)

When you say they sell straddles, I assume it's your take that they are long or short?

Do you think that she started out with collars, and then as her war chest became bigger... (It seams as though the broker house was always looking at the risk sheet every day).. she then went to short straddles.

Posted by OldFart on June 07, 2012 (12:17PM)


yes, sell=short. 5% is 2 standard deviation move, not very often but when it comes it hurts a lot. How they manage to "not return the money"?

Posted by The Otter Way on June 07, 2012 (12:29PM)

OldFart... You're so SmartEEEEE Pant EEEEE's that I need some more help in understanding your take....  

I have enclosed a picture of daily ES mini (SPX futures contract) and on Letter "A" if she identified that price as the low.... and she entered a trade at that time... What short straddle do you think she would have made...  Your explanation would help me considerably....

 

Posted by OldFart on June 07, 2012 (12:47PM)


oh, i am just a monkey, no smarteeeee. She said she looks rarely in the charts with BB only. The way I understood they sell straddles expiring in 50-60 days so at any point she would sell the straddle

Posted by The Otter Way on June 07, 2012 (12:55PM)

Does anyone have a guess as to the price she would have sold the put and call if figure A would have been her bottom for ES at the time?

Posted by Joe Greenwood on June 07, 2012 (01:08PM)

Thanks Rob M for the clarification .....  I mis-heard or something ..    I did understand the bit about "once you gimme yer money u don't get it back" as she collects premium from selling the position (so I patted myself on the back).

One said "strangle", one said "straddle" .....  please excuse me while I post the following for my own educational benefit:

Options Guy said:

STRADDLE:



STRANGLE:


A long strangle gives you the right to sell the stock at strike price A and the right to buy the stock at strike price B.

The goal is to profit if the stock makes a move in either direction. However, buying both a call and a put increases the cost of your position, especially for a volatile stock. So you’ll need a significant price swing just to break even.

The difference between a long strangle and a long straddle is that you separate the strike prices for the two legs of the trade. That reduces the net cost of running this strategy, since the options you buy will be out-of-the-money. The tradeoff is, because you’re dealing with an out-of-the-money call and an out-of-the-money put, the stock will need to move even more significantly before you make a profit.

Options Guy's Tips

Many investors who use the long strangle will look for major news events that may cause the stock to make an abnormally large move. For example, they’ll consider running this strategy prior to an earnings announcement that might send the stock in either direction.

Unless you’re dead certain the stock is going to make a very large move, you may wish to consider running a long straddle instead of a long strangle. Although a straddle costs more to run, the stock won’t have to make such a large move to reach your break-even points.


Posted by TGreen on June 07, 2012 (02:03PM)

On Tradeking you would need Level 4 at least to sell a straddle is my understanding.  I am curious as to how she managed them when it went wrong.   I would think if you were selling them the past month in those indexes it wouldn't have been profitable.  I would think a safer route (but less profitable possibly) would be to do two credit spreads (i.e iron condor) so that your max losses are defined. 

Posted by The Otter Way on June 07, 2012 (02:45PM)

Maybe we can get the optionsguy to view the video and comment shedding a little more light on the subject....


Oh OptionsGuy.... come out come out where ever you are!  All E In Free!!!!!!!

Posted by OldFart on June 07, 2012 (03:09PM)


Big sorry - she is selling strangles, again each leg with 5%. It used to be one needs L5 and $100K account to sell calls

Otter - I had a quich scan of SPXPM options July 21 options. These are the same as SPX but expire at the end of the day and are elctrnically traded. Big surprise - the 5% puts were $10 (so 1000) and the 5% calls - 0.40 or $40. So why bother to sell the calls - double the risk for almost nothing

I need to verify these numbers, did not have much time

Posted by The Otter Way on June 07, 2012 (03:21PM)

Thanks of......

I have the capital and authority.... I'm two days too many going into what I perceived as a bottom... I would have sold the puts and bought the calls.... and exited not in 30 but this morning at 1330...

I will need to integrate with TOS and drop my home solution... It takes to long to integrate another bot concept for options ....   I will want to go after APPL as well.

Might as well just eat the cost of yet another package... It's tax deductible on my company.

Thanks...

Posted by OldFart on June 07, 2012 (04:43PM)

hereis the July 21 strangle, short, 5% each leg. the puts are 10X the calls  timmore expensive 

Posted by optionsguy on June 08, 2012 (02:45PM)

Hello all,

This is a wonderful story. The only thing I don't like is when Mr. Sosnoff keeps saying "this is proof that anyone can do this" many times throughout the video.  Karen is obviously a very smart, intense, and meticulous individual, it is obvious to me she is not just anyone. She was willing to put the time and money in to learn the craft, where most do not. I have a friend that has had similar success as Karen and this person went so far as to quit his full time job to work at a trading firm two years only to see what the "floor" does before he quit and started trading on his own with his own capital.

The biggest truth I heard from Karen in this video is that you have to learn how to control your emotion. That greed and fear are very powerful feelings. To me that means you have to make rules and stand by those rules no matter what. My super trader friend follows the code so much so that if he takes a day off to go golfing he can come home and look at the market and tell exactly how much money he would've made of lost just by looking at the tape and the news for the day. Now after 10 years of day trading he has been able to automate almost all of what he does. So there is no emotion at all in his trading.

With that said. the best trade one can make is being able to take a loss which helped avoid a much bigger loss in the end.  It sounds easy, but you would be amazed how many can't do it. Just ask the JPMorgan traders about that one. I bet they wish that they would've gotten out of their disastrous trade months ago and kept the loss at a cool billion instead of 2 billion plus now. So no, it is not easy and even the so called professionals have trouble sticking to their rules and screw up all the time.

I want to also point out that it definitely is not as easy as just selling deep out-of-the-money strangles and hoping they expire worthless. She definitely must adjust the position throughout the trade.

FYI... PnL graph for her trade is below. The ones above are from the long side. It is the short strangle in the playbook.

http://www.optionsplaybook.com/option-strategies/short-strangle/

So many asked about the 95% probability of success that was mentioned and how to figure it out.  The main way to figure that out on the TradeKing site is to use the probability calculator under the tools menu. Here is a link to a short video tutorial on how to use it.

https://www.tradeking.com/education/video/probability-calculator-series-part-1

Also, here is a video that explains how implied volatility of an option contract can provide a probability of success on a trade. This video is an hour long.

https://www.tradeking.com/education/videos/obp-part-7-historical-and-implied-volatility

Regards,
Brian (Og)

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