We employ market neutral strategies that collect volatility risk premium in exchange traded options contracts. Essentially, we sell insurance to traders in the form of time. Volatility risk premium is the portion of an options contract value that is the difference between present implied volatility and future realized volatility.
The reason it works is that options contracts are consistently priced at a higher volatility than is realized over the life of the contract. As time moves on and the options contract nears expiration, the buyer’s volatility risk premium decays and we collect it.
These strategies are largely uncorrelated to market movements. What we mean by this is that these strategies are profitable within a relatively large, well-defined range of market movement. And while it is entirely possible that the market moves outside this range, our strategies can be adjusted to accommodate these movements.
Our motto is Capital Preservation First, Maximum Profits Second. You must understand the risk with every trade and size that trade appropriately, we never initiate a trade without an innate understanding of the downside and how to mitigate it. This doesn’t mean we are risk averse, oh no! But it does mean we are keenly risk aware.
We employ the following guidelines in order to reduce risk:
- Trade highly liquid indexes and sectors, thereby reducing exposure to individual company, commodity, or industry-specific events.
- Employ risk-defiend, delta-managed option spreads to avoid the need and cost of dynamic hedging.
- Diversify the application of our strategies