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Karen The Supertrader

Interviewed by tastytrade

The 4 videos above are of a past tastytrade guest, Karen Bruton. We've become aware that she and her firm are currently under SEC investigation for her accounting and reporting practices. Karen is not affiliated with tastytrade in any way other than as a prior guest on our program, last appearing on the network in 2014. We at tastytrade believe in full and transparent disclosure by money managers and we continue to advocate on behalf of the retail trading community.

KAREN THE SIMPLE TRADER - History

Before Karen was dubbed Karen The Supertrader, she was a CFO for a small company. She was considering opening a bagel shop with a friend, then was invited to attend an options trading seminar. In 2002, she decided to invest the money in an options training class and started trading with $10,000 USD. The rest is history.

Initially, with her accounting background, Karen analyzed the fundamentals of public corporations for her investment decisions. However, over the next 5 years she abandoned fundamental analysis and dove into technical analysis. She began studying charts and trying several different types of options trading strategies while continuing to work her day job as a CFO.

In 2007, Karen The Supertrader resigned from her company and decided to begin trading options full-time. She decided to transfer $100,000 into a brokerage account at thinkorswim from a savings account managed at Merrill Lynch, which retuned her hardly any money over ten years. Karen started appreciating the quantitative analysis that the thinkorswim platform offered and started incorporating the statistical probabilities into her investment strategies. In her first year after doing so, she made $50,000 in profits using options strategies such as Iron Condors and Credit Spreads.

In 2008, Karen migrated from trading options in individual stocks to trading indices, but always selling premium. Her motto became, “Once I collect premium, I don’t want to give that money back.”

KAREN THE SUPERTRADER - Strategies

Karen’s main trading strategies focus strictly on selling premium and using Bollinger Bands to view the standard deviations in a graphical form, preferring to put on trades outside of two standard deviations to current prices. She used to trade as many as 30 stocks at a time, but was continuously burned by the earnings announcements of the public companies she held in her portfolio. Karen revised her strategy to focus on selling wide Index strangles in SPX, RUT and NDX.

Today, she mainly trades the S&P 500 Index (SPX), which in addition to tax advantages has commission optimization, liquidity, and size, as opposed to SPY, which she says is too expensive for her to trade cost effectively.

Karen The Supertrader sells contracts at 56 DTE (Days To Expiration) and keeps the trade on for a few weeks, or sometimes, just a few days. She then takes the front month off and sells the back month, again at approximately 56 DTE. Around 40 days, if the options seem safe, she leaves the front month on, but more often than not she takes off her initial position 10 to 25 days later. For example, by October 30th she closes out of most of her November positions and already has positions open in December.

When volatility is high, Karen The Supertrader constantly trades, selling and collecting premium. If volatility is low, she often lets her front month positions expire worthless. For her, good volatility is when the VIX is between 18 and 20.

Karen also ladders out positions – opening positions at different expirations, and always trying to sell Calls and Puts 95% OTM (Out of The Money) or two Standard Deviations away.

RISK MANAGEMENT

Karen The Supertrader always looks at the market as if it has already fallen 100 to 200 points, and then subtracts 12% more from that.

For example, if the SPX was $1,450, Karen The Supertrader may subtract 100 points to $1,350 then multiplies that by 0.88 (12%), giving her a price of $1,188. Karen would then actively trade in that area.

Karen does sell Calls, though much less often than she sells Puts. She also legs into each side of the market rather than placing trades as “strangles.” As a contrarian in her trading style, Karen sells Calls on up moves and Puts on down moves. Most often Karen the Supertrader sells more Puts than Calls.

Another risk metric Karen The Supertrader uses is the analyze tab on the thinkorswim platform, utilizing the parameters of 10% up and 12% down to see how her net liquidation would look if the market were to move in either of those directions. Karen’s goal is to prevent her trades from going ITM (In The Money). If a position moves close to 30% ITM (In The Money) she makes an adjustment by moving her positions up or down when the underlying hits that level. She might sell more options on the untested side to cover the cost of moving the position, but she also looks at the time left on the option to make decisions on whether to close or roll a trade. Karen The Supertrader rarely leaves open positions in front month options but may do so if they are nearly worthless.

Karen The Supertrader commits around 50% of her capital, though sometimes she will go as high as a 70% capital commitment, but prefers to remain at around 50% in case she needs to move positions up or down. Karen never uses “stop losses” because she and her team watch the markets at all times.

In 2013, Karen claimed she did not have a losing month, nor did she have to roll out her front month positions to the next month. She used between 1 - 1 ½ Standard Deviation to open positions rather than a 2 Standard Deviation. As for a time frame, she sells Monthly Puts and Weekly Calls, two weeks out, trading closer to ATM than she has in past years.

TRADING PARTNERS

Karen The Supertrader does not trade in a vacuum. She has six people with her who trade in a powerful, circular trading room environment. Karen The Supertrader recommends trading with a partner.

If you don’t have a partner, you always have the tastytrade Network!

Watch Karen The Supertrader’s tastytrade interviews with Tom Sosnoff and Tony Battista!