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Every few decades, a prodigy emerges with a brilliance so inhuman it boggles the mind. We’re talking A Beautiful Mind times Rain Man to the Albert Einsteinth power. Any individual investor, hedge fund manager, or market analyst will tell you that financial markets are near impossible to predict. Unless, of course, you have insider information.
Former community college psychology professor turned congresswoman Judy Chu is apparently one of these prodigies, and since her election in 2009, she has day traded her way to a lofty $3.5 million net worth. This wouldn’t be surprising unless you take into account the fact that she had to deal with Los Angeles’ high cost of living over her 20-year professorial career, her pension from that career totals between $100,000 and $250,000 (broken down into annual disbursements), and her husband is only worth six figures at best himself.
Well, we may have uncovered a clue in this mystery, other than the fact that she’s clearly a genius and a better day trader than any institution out there. In the article, nine pages of day trades, yes nine pages of them, for ONE MONTH of trading are shown from her filings. Now, this could all be good and fine in the day trading world, but the nature of the trades are very suspect. These trades were calls and puts on not only the S&P 500, but also volatile indexes like the VIX volatility index. In layman’s terms, these are very advanced high leverage, high risk trades. Most brokerages won’t let you trade options at all unless you have a long investing track record with either them or another firm. More suspicious are the sizes of these trades, ranging from $1,000 to $15,000 per trade. Nine pages of high risk, high leverage trades up to $15,000 each in one month. That’s a lot of money to risk.
So, what can we conclude here? At first we could assume that Ms. Chu is simply taking advantage of Congress’ exemption from regulatory oversight in financial markets (which, frankly, is a bullshit benefit). I know if I could legally insider trade, I’d abuse the hell out of it. But even with insider information, her feat of what had to be 60+% compounded annual gains (assuming she was willing to risk the entire value of her pension on day one) is truly miraculous. Obviously if she started trading with less money her compounded annual gain was much, much higher. To give you an idea of how this compares to the pros, billionaire George Soros’ Quantum Fund boasted 30% annual compounded returns over a decade. In other words, Congresswoman Chu’s success just a little sketchy. Then again, she may just be a genius or had some really good insider information. If it’s the former, I’d be happy to invest my entire nest egg in any hedge fund she may decide to start. .
[via Zero Hedge]
Image via YouTube
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@5OClockShadow_
There’s virtually no way to have a track record like that without boatloads of insider info. So good for her for abusing the loophole Congress has I guess. On another note, no wonder nothing gets done in Congress when they’re all fucking day trading like this.
Just thinking this…the first thought that came to mind is what in the hell is she doing all day, because let’s say she didn’t have inside info (yeah right) there is no way this is a passive daily activity.
Guys, I’ve decided to run for Congress.
The PGP party unites.
Her husband sure hit the lottery..
Insider trading is a helluva drug
To be fair if she was simply buying puts and calls that is not a leveraged position, the most you could lose would be what you put in, same risk a buying a common stock. She would be leveraged and in risky positions if she sold those puts or calls. Buying puts and calls actually is a way of protecting oneself from other leveraged situations as selling say a stock short or buying on margin.
I wouldn’t say buying options has the same risk as buying stock considering you can hold a stock forever but options have a time value and a strike price. If your strike price is even a penny off on the wrong side by the expiration you can be out 100% of your option premium (in her case up to $15,000), whereas your stock can increase in value at a later date.
This isn’t really as risque as it looks. You don’t really have to have a long track record of options trading history to trade at a brokerage house like TD Ameritrade, you just have to sign an Options agreement that basically is an understanding of your liability. 99% of brokerage houses like TD, Scottrade, Fidelity, etc. will OK almost any options agreement as long as they agree to margin as well.
Hard to tell from the transaction reports but it looks like she was just making a put spread position, which considering she was buying the VIX and S&P indexes, not much “insider” knowledge there given the broadness and really isn’t all that risky.
When I signed up for sharebuilder (now owned by capitalone), I had to apply to be able to trade options. They said it would take upwards of a week to get approved after a proper check. I was approved within 24 hours. However, trading on margin was another step in the process and required a further check, which I would assume was more intense (but probably not).
Yup, that’s exactly what happens. You will sign an options agreement, and then they will quote you on a 3-5 business day review process, but really it’s just some guy in their back office that is drinking Mt Dew and will review your app and sign off on it. Most brokerage houses require $25k to trade in a margin account but it can vary.
This stuff is why Trump/Bernie is a thing
Those in Congress work hard pushing special interests groups agendas all day, the least we can allow them to do is benefit from insider knowledge obtained through dealing with said special interests groups.
A quick Google search turned up that she has a bachelor’s in math from UCLA, so she probably had some good idea of what she was doing with all that insider trading info.
More likely: if one could cross reference her trading activity with other independent day traders I would bet the farm on there being a match.