The Ebullio Commodity Fund - Feb 2010 Commentary

[brownsfan019 17]

I found this at ET and thought it was an interesting read. Attached is a PDF from The Ebullio Commodity Fund which just went through a huge drawdown.

 

While one could just laugh at them, I think we can all learn lessons from the pros. Yes, they would be considered a 'pro' although it may come into question after this.

 

I think it stresses just how important money management and risk management is, regardless of the size of your trades. You have to sit back and wonder - how on Earth did they allow these losses over the last 2 months become so large? We may never know the full story, but something should have set off some alarms at some point I would think.

ebullio feb 2010.pdf

[atto 20]

I'm surprised they're still open for business. I wish their "transparency" included exactly what went wrong: how their risk metrics failed, why they were so directional, what kind of leverage they were using, and how they will adjust their strategy so this never happens again.

 

Their returns looks as if they've been short premium, and a few deep OTM positions got hit, but it says their losses are directional. Anyone have further insights into what their trading strategy is/was?

[james_gsx 16]

I think it goes to show how complicated risk management really is. It's not, "I will only lose X per position." Simply because there are so many other factors at play, and chances are they were playing around with various and futures contracts and something hit them hard.

 

Also, from the sounds of their last paragraphs it seems they take large bets that feel more 2008 then 2010. They almost sound stuck between that, what we think markets should do and what they really are doing. But it's hard to tell from just a brochure.

[brownsfan019 17]

I think it goes to show how complicated risk management really is. It's not, "I will only lose X per position." Simply because there are so many other factors at play, and chances are they were playing around with various and futures contracts and something hit them hard.

 

Also, from the sounds of their last paragraphs it seems they take large bets that feel more 2008 then 2010. They almost sound stuck between that, what we think markets should do and what they really are doing. But it's hard to tell from just a brochure.

 

Does it really need to complicated though James? One could argue you have a point at which you are wrong and should exit the trade - not turn it into an investment or long-term position.

 

At the very, very least - an oh sh*t stop loss could have been used to prevent a drawdown like this.

[james_gsx 16]

Does it really need to complicated though James? One could argue you have a point at which you are wrong and should exit the trade - not turn it into an investment or long-term position.

 

At the very, very least - an oh sh*t stop loss could have been used to prevent a drawdown like this.

 

Oh absolutely I agree with you, but they claimed to be using options in which case it is more complicated then losing X amount. They claimed their options "hedge" didn't work as well as planned - which tells me they probably didn't really understand what they were doing to begin with - or they did but they ignored the potential implosion.

 

I don't know how big this trade was or what they were tied up in, but someone obviously missed something.

[brownsfan019 17]

Oh absolutely I agree with you, but they claimed to be using options in which case it is more complicated then losing X amount. They claimed their options "hedge" didn't work as well as planned - which tells me they probably didn't really understand what they were doing to begin with - or they did but they ignored the potential implosion.

 

I don't know how big this trade was or what they were tied up in, but someone obviously missed something.

 

Gotcha.

 

Yeah I didn't understand how the 'hedge' didn't really hedge. lol

[atto 20]

From my understanding, the options were just a "worst case" measure, and were placed way too far out. So basically, they opted for cheap options (thinking there's pretty much no chance their main position will go that much south), which didn't do a good job covering them.

[MCM 10]

90% drawdown.

 

Graphs that look like a 3rd grader made them.

 

Only to be comforted in the end by a crappy quote from a little seen movie with a cheesy movie poster.

 

I am sure their customers are re-assured at their ongoing strategy.

[james_gsx 16]

90% drawdown.

 

Graphs that look like a 3rd grader made them.

 

Only to be comforted in the end by a crappy quote from a little seen movie with a cheesy movie poster.

 

I am sure their customers are re-assured at their ongoing strategy.

 

You'd be surprised how many garbage hedge funds are out there. Something has to make up all those fund of funds...

[DugDug 10]

After turning from bullish to bearish they should change the name to El bearisho