Thursday, February 16, 2017

Possibly Important Intelligence: "Meet The Man Behind The Market's Relentless Ramp"

It may just be coincidence that the day after the fund unwinds its problem trade the markets turn south.
Or it may not.

From ZeroHedge:

In an ironic twist of fate, it appears the catalyst for many of the biggest and most incomprehensible market ramps of the last few years is a fund called "Catalyst." With around $4 billion under management (before the latest collapse), the levered options fund is run by Edward Walczak who "uses options to create a better risk/return profile." 
The Catalyst Hedged Futures Strategy Fund is an open-end fund incorporated in the USA. The objective is capital appreciation and capital preservation in all market conditions. The Fund invests primarily in long and short call and put options on S&P 500 Index futures contracts and in cash and cash equivalents, including high-quality short-term (3 months or less) fixed-income securities.  
A 'great/lucky' year in 2008 and solid returns since...
Until recently...
  • 1 Week -14.07%
  • 1 Month -12.61%
  • 3 Months -16.96%
  • YTD -13.56%
  • 1 Year -10.11%
  • 3 Year -1.08%
Things have not gone well since the election...
As we noted previously, the melt-up in the S&P is the result of "a purported / murky melt-down over the past week in a large trade by a multi-billion Dollar (open-ended) futures fund which sells vol on S&P.  Without going into specifics, there is market speculation that the entity is effectively short upwards of ~$17B of SPX (deltas to buy) through selling February expiry upside 1x5 (or 1x4) call spreads." 
And here is the man that runs the show...
...As detailed previously, Edward Walczak began his trading career after 25 years in business operations and supply chain management. It was Walczak’s experience running Chicago-based candy manufacturer Brach’s commodity hedging operation in the late 1990s that got him deeply involved in the markets.
At one point, Walczak’s boss asked him about position limits and he had no idea what he was talking about, Walczak says. “You only get embarrassed once and I spent a week with my trader [learning] the business and became intrigued by it.” Walczak is a math guy with degrees in Physics and Economics from Middlebury College and an MBA from Harvard, so naturally he was drawn to options. By 2005 he was making more money trading than in his day job, so he began trading proprietary money full-time and set up a commodity pool for friends and family. In 2006 his proprietary trading returned 52.68% and in 2007 he added customer accounts to the Madison, Wis. based Harbor Financial LLC. Fortunate breaks come in all forms. For Walczak his biggest break may have been a painful February 2007  drawdown in his mainly option writing S&P 500 program. The drawdown was not fatal, 17.93% for the month, and the program was positive for the year, but it made Walczak rethink his overall approach. “Back in ’07, VIX was trading around 10 and all of a sudden the S&Ps dropped 50 handles in a day,” Walczak says. “A 50-point drop at the time was a big deal but historically was not that bizarre. It could have been a lot worse and I could have been wiped out, so I had to do something different.” He spent the next year researching. “How do I cover these other risks that are out there and how [do I] use options to have a better risk/return profile?” he asked himself...