Trading Description: The strategy uses S&P 500 index futures options as the focus, or as a major focus. This strategy may be augmented with positions in other futures and options markets, at the discretion of the Advisor. The following provides more detailed information of the strategy.
Very often the market is not trending. Neither up nor down. Most of the time, it is in zig- zag mode called a �consolidation�. Therefore, when the market is in this condition, we use the strategy to take advantage of the choppiness and non-direction. A basic tenet of this strategy is that, at times, it is best to determine where the market will not go versus where the market will go.
The strategy collects premiums by writing (selling) options on the S&P 500 index future, though occasionally other indexes may be used. The seller (writer) of an option risks losing the difference between the premium received for the option and the price of the underlying futures contract that the writer may be assigned upon exercise of the option.
A determination, educated by research and technical analysis, is made of the likely market trading range in the short term. Research shows that over the last ten years the S&P 500 Index, in any 30 day period, generally trades within a certain range. Based on that, our strategy seeks to implement the selling of options outside that range on a monthly basis. That means that call and put options, most often in pairs, are sold at different strike prices above and below the anticipated market trading range. Within this range the market can go up or down, or trade flat and the options sold can still expire worthless, to the seller advantage, at the end of the cycle. Most often, options expire at a loss to the buyer and a gain to the seller.
Trades are usually initiated less than six weeks from expiration. According to the market movement, the positions may be held until expire with their total value lost. That event maximizes the return for the option pair (known as a �strangle�) by retaining all the funds received into the account when the option was initially sold. However, there are times when positions may be bought back (covered) before expiration for several possible reasons. They include, to protect profits, to increase the profit potential for the next cycle option or for adjusting to other strikes by sellers, and to avoid or minimize a likely loss. The cycle is repeated continuously, market conditions permitting. The goal is to achieve a profitable outcome for the client regardless of the direction of the price movement of the underlying index, so long as the index price remains within the range of the strike prices of the options sold. As a consequence, profitable situations can be realized both in bear markets, bull markets or, best of all, when markets are mostly moving sequentially up and down within a range.
Risk Strategy: There are at least three protective approaches that we use when the market acts differently than expected. The first is simply to close the position, to "cover." This may incur a loss on a particular trade but prevent the possibility of a larger loss if the position were retained. Second is to cover and �roll� simultaneously (or nearly simultaneously) by selling another position in the same or subsequent months. Rolling returns premium to the account immediately although it may not offset the full loss of covering. It does, however, give us the opportunity to recover the losses upon market stabilization. A third way out is to buy (if the errant move is to the upside) or sell (if the opposite) the index future itself at or near the strike price. This will alter the position to a covered call (or covered put) that can improve characteristics of the original position. In summary, selling strangles on the S&P 500 index futures can be an important addition to any portfolio seeking a growth component. Compared with individual stock investments or buying options, where decisions on all three variables (time, price and volatility) must be correct to achieve great success, the option seller only needs to have one of three in his favor.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE SUCCESS. THERE IS A RISK OF LOSS IN FUTURES TRADING. THERE IS UNLIMITED RISK OF LOSS ASSOCIATED WITH WRITING SHORT OPTION CONTRACTS.
Margin to Equity: (7)
Worst Drawdown: (3)
Current Losing Streak: (2)
Avg Commission: (8)
Sharpe Ratio 1% RF ROR: (5)
Round Turns per Mil: (9)
Calmar Ratio 36 Months: (6)
NFA Member: Yes
Third Party Accountant:
NFA ID: 0431012
Other Memberships: None Listed
Peer Correlations (Autumn Gold Indexes are Non-Investable)
AG CTA Index: 0.554  AG Systematic CTA Index: 0.451
(P) - Proprietary Trading Results
(C) - Client Trading Results
1. Rate of Returns are calculated from the start date of each program. Usually returns are calculated based on the Annual Compounded Rate of Return method. In some cases returns have been calculated on an Non-Compounded basis. This would occur when a CTA trades based on account unit rather than on account equity.
The Annual Compound
Rate of Return represents the compounded rate of return
for each year or portion thereof presented. It is computed by
applying successively respective monthly rate of return for each
month beginning with the first month of that period.
Annual Rate of Return is calculated adding each month's return.
2. The Current Losing Streak represents the extent of the Adviso'rs current drawdown.
3. From Start Date of Program - The Worst
Peak-to-Valley Drawdown is defined as the greatest cumulative
percentage decline in net asset value due to losses sustained
by the trading program during any period in which the initial
net asset value is not equaled or exceeded by a subsequent asset
4. Omega Function takes all of the performance data into consideration. The flatter the distribution the more risky the investment. "The distribution mean is where the omega function equals 1. "Omega provides practitioners with an extremely useful tool since it accounts for the non-normal distributions of returns which are commonplace in finance, particularly for alternative investments. ...omega incorporates all the moments of the distribution and is therefore appropriate for investment analysis when returns are not normally distributed. Second, even for normally distributed returns, omega provides additional information since it takes into account the investor's preferences for loss and gain. Finally, omega is computed directly from the returns distribution and measures the total impact of the moments instead of each one of them individually. It can therefore reduce the estimation error risk." [Abrams, Ray, Ranjan Bhaduri, PHD, CFA, CAIA, and Elizabeth Flores, CAIA. "Litner Revisted: A Quantitative Analysis of Managed Futures for Plan Sponsors, Endowments and Foundations. CME Group (May 2012): 12-14. Print]
5. Sharpe Ratio is a risk adjusted ratio that rewards consistancy of returns. Traders are penalized for volatility regardless of whether it is onthe up or downside. The Sharpe Ratios is calculated using a 1% risk-free rate of return.
6. Calmar Ratio represents the historical amount gained for each dollar risked. A higher number is better. Unless otherwise denoted the Calmar Ratio is calculated by dividing the 36 month Compounded ROR by the 36 month Peak to Valley Drawdown. Traders with less than 36 months of data or a negative Calmar Ratio will be indicated by N/A.
7. Margin to Equity represents the average margin as a percent of a fully funded account.
8. The Average Commission represents the average commission
rate of the composite track record. A higher or lower commission
rate would increase or decrease the performance accordingly.
9. Round Turns per Million represent the average number of round turns that would be generated in a $1,000,000 account.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
RISK OF TRADING COMMODITY FUTURES AND OPTIONS IS SUBSTANTIAL. THE HIGH DEGREE OF LEVERAGE ASSOCIATED WITH COMMODITY
FUTURES AND OPTIONS CAN WORK AGAINST YOU AS WELL AS FOR YOU. THIS
HIGH DEGREE OF LEVERAGE CAN RESULT IN SUBSTANTIAL LOSSES, AS WELL AS GAINS.
YOU SHOULD CAREFULLY CONSIDER WHETHER COMMODITY FUTURES AND OPTIONS IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IF YOU ARE UNSURE
YOU SHOULD SEEK PROFESSIONAL ADVICE. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE SUCCESS. IN SOME CASES MANAGED ACCOUNTS ARE CHARGED SUBSTANTIAL
COMMISSIONS AND ADVISORY FEES. THOSE ACCOUNTS SUBJECT TO THESE CHARGES,
MAY NEED TO MAKE SUBSTANTIAL TRADING PROFITS JUST TO AVOID DEPLETION OF
THEIR ASSETS. EACH COMMODITY TRADING ADVISOR ("CTA") IS REQUIRED
BY THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") TO ISSUE
TO PROSPECTIVE CLIENTS A RISK DISCLOSURE DOCUMENT OUTLINING THESE FEES,
CONFLICTS OF INTEREST AND OTHER ASSOCIATED RISKS. A HARD COPY OF THESE
RISK DISCLOSURE DOCUMENTS ARE READILY AVAILABLE BY CLICKING ON EACH CTA'S
"REQUEST DISCLOSURE DOCUMENT" BUTTON. THE FULL RISK OF COMMODITY
FUTURES AND OPTIONS TRADING CAN NOT BE ADDRESSED IN THIS RISK DISCLOSURE
STATEMENT. NO CONSIDERATION TO INVEST SHOULD BE MADE WITHOUT THOROUGHLY
READING THE DISCLOSURE DOCUMENT OF EACH OF THE CTAS IN WHICH YOU MAY HAVE
AN INTEREST. REQUESTING A DISCLOSURE DOCUMENT PLACES YOU UNDER NO OBLIGATION
AND EACH DOCUMENT IS PROVIDED AT NO COST. THE CFTC HAS NOT PASSED UPON
THE MERITS OF PARTICIPATING IN ANY OF THE FOLLOWING PROGRAMS NOR ON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE DOCUMENTS. OTHER DISCLOSURE STATEMENTS
ARE REQUIRED TO BE PROVIDED TO YOU BEFORE AN ACCOUNT MAY BE OPENED FOR
CLIENTS SHOULD NOT BASE THEIR DECISION ON INVESTING IN THIS TRADING PROGRAM
SOLELY ON THE PAST PERFORMANCE PRESENTED.
ADDITIONALLY, IN MAKING AN INVESTMENT DECISION, PROSPECTIVE CLIENTS MUST
ALSO RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY MAKING THE
TRADING DECISIONS AND THE TERMS OF THE ADVISORY AGREEMENT INCLUDING THE
MERITS AND RISKS INVOLVED.