Positive Theta Program

Transcription

1 Positive Theta Program A separately managed account (SMA) program for QEP only investors Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd.

2 Contents Disclaimer 3 Mission Statement 4 Our Belief 5 Testing Our Belief 6-7 First Test Result 8 What we learned 9 A roadmap 10 We re-ran the test 11 Second test results 12 The Macro Allocation Opportunistic 13 A New Challenge The Core Allocation- Advanced Risk Management 17 Core Allocation: Advanced Risk Management Black Swan Events 20 The Final Challenge 21 The Solution 22 The Best Expression 23 The Tail Allocation 24 Three Synergistic Strategies 25 Positive Theta Program Allocation Cycle 26 Actual Performance Philosophy 29 How we blend with other strategies 30 Terms of Offering 31 Non Correlated Capital Pty Ltd 32 Traders 33 Contact Us 34 Glossary 35 Thank you 36 Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 2

3 Disclaimer PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT DOCUMENT. THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY AND IS PROVIDED ON A CONFIDENTIAL BASIS TO INVESTORS WHO ARE DEEMED QUALIFIED ELIGIBLE PERSONS AS DEFINED UNDER THE COMMODITY TRADING COMMISSION S RULE 4.7. WE EXPRESSLY DISCLAIM ALL LIABILITY FOR ERRORS OR OMISSIONS IN, OR THE MISUSE OR MISINTERPRETATION OF, ANY INFORMATION CONTAINED IN THIS PRESENTATION. INVESTMENT IN FUTURES AND FUTURES OPTIONS INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR SOPHISTICATED INVESTORS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND FUTURE RETURNS ARE NOT GUARANTEED. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUALRESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. No person is authorized by Non Correlated Capital Pty Ltd to give any information or to make any representation not contained in this presentation in connection with the matters described herein, and, if given or made, such information or representation must not be relied upon as having been authorized by Non Correlated Capital Pty Ltd. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 3

4 Mission Statement To generate alpha* across all market conditions and to remain non-correlated to traditional asset classes. * See glossary Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 4

5 Our Belief We believe we have an edge in trading options in the futures markets. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 5

6 Testing our belief We sold out of the money option strangles* over the front month contract of 26 futures markets, every month, for 12 years. The exit criteria was simple: exit any option position where the underlying price breached the option strike price*. If this did not occur, the options would be allowed to expire worthless and the premium was captured. * See glossary Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 6

7 Testing our belief Then we shortlisted 7 based on correlation. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 7

8 This is the result of that test *please read our disclaimer regarding hypothetical results Please contact us for details on our historical trials - [email protected] Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 8

9 What we learned Volatility has a personality. Allocation matrix Contact us for details on our unique allocation matrix - [email protected] Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 9

10 We Developed a Roadmap A proprietary, volatility ranking method and unique allocation model. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 10

11 We re-ran the test The exit criteria remained the same and we were not in every market, every month. Volatility became the trigger. Also, a new criteria allowed for buying a strangle* in selected markets. The result * See glossary Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 11

12 Second Test Result Draw down reduced, returns amplified *please read our disclaimer regarding hypothetical results Please contact us for details on our historical trials - [email protected] Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 12

13 This is the MACRO ALLOCATION It is opportunistic, waiting for volatility to spike before acting. It buys and writes options over 13 futures markets. It is 50% of the POSITIVE THETA PROGRAM. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 13

14 A new challenge The Macro Allocation waits for volatility to trigger a trade. At times of low volatility, the Macro Allocation will not trade. What then? Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 14

15 A new challenge We selected the single best market to capture time decay every month, regardless of volatility and designed an allocation that is always in the market. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 15

16 A New Challenge Now volatility is not to be predicted, it is simply to be managed. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 16

17 This is the CORE ALLOCATION Utilises advanced risk management. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 17

18 Core Allocation: Advanced Risk Management Utilising custom built, real-time risk software that tracks: Position Delta* and Gamma* Equity Draw Market Structure We dynamically adjust the position delta* to keep within draw down and position delta* tolerances. * See glossary Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 18

19 Core Allocation: Advanced Risk Management If the giant wakes (volatility spikes), long options are used to change the nature of the position +$ +$ Price Price -$ -$ Contact us for a more detailed explanation of the above risk graphs on [email protected] Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 19

20 What if there is a black swan event? NCC believes that it can handle any event the world has seen in the last 30 years. If there is an event of catastrophic magnitude that we haven t seen before, NCC may be subject to a drawdown due to its unlimited risk profile. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 20

21 The Final Challenge To protect the portfolio against unforeseen extreme events and change the profile from one of an unlimited drawdown, into a potential gain. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 21

22 The Solution By backspreading out-of-the-money options NCC adds some long volatility to the portfolio and the distribution changes to have a potential gain amidst rare events. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 22

23 The best expression The tail allocation is implemented to cover any short option exposure created by the Macro and Core allocations. Typically one to two times more options will be bought at lower deltas each month. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 23

24 This is the Tail Allocation: NCC will deploy up to 3% of total capital per annum as risk control. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 24

25 Three Synergistic Strategies Always In Opportunistic Risk Control Core Allocation Macro Allocation Tail Allocation Positive Theta Program Single Market Focus Multi- Market Opportunity Strategy Protection Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 25

26 Positive Theta Program Allocation Cycle Macro Allocation Volatility Index Core System Risk Management Tail Allocation Core Allocation Please contact us to discuss this concept in more detail Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 26

27 Actual Performance Our trading has withstood the test of time Over 5 years of actual performance Audit available on request [email protected] Sign-up for our monthly performance updates at Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 27

28 Actual Performance Footnotes 1. Prior to July 2012 the programs performance capsule is shown as proprietary performance. After July 2012 the programs performance capsule is shown as a composite of managed accounts. 2. Prior to July 2012, Rate of Return is net of pro-forma fees of a 2% management fee and 20% quarterly incentive fees. After July 2012, Rate of Return is net of fees of a 2% management fee and 20% quarterly incentive fees. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. AN INVESTMENT IN THE PROGRAM OFFERED HEREBY IS SPECULATIVE AND INVOLVES A SUBSTANTIAL RISK OF LOSS Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 28

29 Philosophy Positive Theta Program Options premium is leverage. Where there is leverage there is greed. Where there is greed, there are unrealistic expectations. The cost of options leverage is time. By trading time (theta*), the Positive Theta Program, TRADES AGAINST UNREALISTIC EXPECTATIONS. * See glossary Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 29

30 How we blend with other strategies Typically, option writing strategies have a negative skew* in the returns distribution. Although this is true for our program, we have worked very hard to bring the skew as close to symmetrical as possible. When building a portfolio of strategies, you will find the Positive Theta Program a good fit with more traditional positive skew strategies, such as trend following. For further information on how our strategies can fit into a larger portfolio, along with return analysis against the Newedge CTA dataset, please contact us at [email protected]. * See glossary Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 30

31 Terms of Offering Company Name Program Name Management Fee Incentive Fee Incentive Duration High Water Mark Minimum Account Prime Broker/Custodian CTA Administration Legal Counsel Non Correlated Capital Pty Ltd Positive Theta Program 2% 20% Quarterly Yes $250,000 RJ O Brien Michael Coglianese CPA Investment Law Group Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 31

32 Non Correlated Capital Pty Ltd a proprietary limited company domiciled in Australia. registered with the Commodity Futures Trading Commission ("CFTC") as a Commodity Trading Advisor ("CTA") and is a member of the National Futures Association ("NFA") - ID an emerging manager with 3.3 million in AUM manages a wholesale pooled fund Positive Theta Fund - $1.5 million (Australian investors only) six separately managed private Australian accounts - $1.8 million trading a strategy utilising commodity futures options four and a half year track record (audit available on request) launching the trading program as a NFA registered CTA in the US Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 32

33 Traders Kevin Saunders A Fin, Dip Fin. Markets (Dux) Kevin is a co-founder and Trader of Non Correlated Capital Pty Ltd. Educated through FINSIA, Kevin was awarded the Victorian Dux and was the national subject prize winner for Derivatives: Applying theory to Practice. Kevin has been a private trader since 1999 and has been actively involved in the trader education market. In 2001, Kevin founded a private business, Know the Ropes for the purpose of providing financial consultation and content creation. Since 2001, Kevin has worked closely with several trader education companies and associations as a content provider and speaker. Over the last ten years, Kevin has gained extensive experience in risk management, trade planning and execution, money management and trading system design. This knowledge has seen practical application in the market place with his own capital and capital which he manages for Non Correlated Capital. Troy Burns AFMA Dip Fin, Dip Civ Eng Troy is a co-founder and Director of Non Correlated Capital Pty Ltd. Troy began his professional career in civil engineering, where in 2004 he founded a company, Burns Civil Pty Ltd, which provided civil engineering design services to companies such as BHP Billiton and Rio Tinto. Troy started trading futures and options in 2001 for a private family trust Positive Theta Trust. Through the practical application of his ideas, Troy became pivotal in the development of the strategies now traded by the Advisor. Troy s systematic and process-driven mindset makes him a primary asset in the management of new investment and growth strategies for NCC. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 33

34 Contact Details Representatives: Phone: Address: Troy Burns, Kevin Saunders Little Collins St Melbourne, Victoria Website: Australia, Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 34

35 Glossary Source: Investopedia Strike Price The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike prices are fixed in the contract. For call options, the strike price is where the security can be bought (up to the expiration date), whilefor put options the strike price is the price at which shares can be sold. Strangle An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset. NCC s strategies involve selling the strangle in an attempt to profit from the time decay inherent in option pricing. Such a position is exposed to both price direction and price volatility risk. Delta and Position Delta The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of an option. Sometimes referred to as the "hedge ratio. Position Delta is a summation of the individual deltas of all the options in a portfolio allocation. Gamma The rate of change for delta with respect to the underlying asset's price. Gamma is an important measure of the convexity of a derivative's value, in relation to the underlying. In a delta-hedge strategy, gamma is sought to be reduced in order to maintain a hedge over a wider price range. A consequence of reducing gamma, however, is that alpha too will be reduced. Theta A measure of the rate of decline in the value of an option due to the passage of time. Theta can also be referred to as the time decay on the value of an option.ifeverythingisheldconstant,thentheoptionwilllosevalueastimemovesclosertothematurityoftheoption. Alpha 1. A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha. 2. The abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM). Skew Skew, or skewness, can be mathematically defined as the averaged cubed deviation from the mean divided by the standard deviation cubed. If theresult of the computation is greater than zero, the distribution is positively skewed. If it's less than zero, it's negatively skewed and equal to zero means it's symmetric. For interpretation and analysis, focus on downside risk. Negatively skewed distributions have what statisticians call a long left tail, which for investors can mean a greater chance of extremely negative outcomes. Positive skew would mean frequent small negative outcomes, and extremely bad scenarios are not as likely. Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd. 35

36 Positive Theta Program Thank you for your time Reproduction and distribution to third parties of this document, or any part thereof, is only permitted with the prior written permission of Non Correlated Capital Pty Ltd.