VOLATILITY PREMIUM RISK

Our strategy based on ES (S&P 500) and NQ (Nasdaq) options utilizes a model focused on selling volatility and targets short-term systems. It involves selling options with 0 days to expiration (DTE) at deltas between 0.1 and 0.3 with an asymmetrical preference for the call side. This approach is supplemented with delta-hedging using ES and NQ futures.

Choosing low DTE limits the vega risk associated with sudden spikes in implied volatility. The strategy has been applied since 2021 to accounts at Swissquote, TastyTrade, Interactive Brokers and Exante.

Automated trading is applied solely to delta-hedging positions in ES and NQ futures, while out-of-the-money (OTM) options are opened for the U.S. session through combination transactions. Delta-hedging adjusts dynamically based on market volatility, supported by parameters enhanced with machine learning. Options at the at-the-money strike are rolled forward with the corresponding futures positions for delta-hedging at expiration.

The strategy shows an average daily expected return of 0.18% gross (before commissions) and 0.12% net (after costs). The win ratio, calculated as the ratio of profitable days to losing days, is 1.82 net and 2.41 gross.

Our research is primarily conducted in-house. Our research department focuses on testing a wide range of possibilities in the markets and our systems. By continuously testing and simulating various market situations, we are better prepared and can consistently upgrade our systems. When we encounter a problem or an unexpected market situation, we conduct multiple tests and, based on the results, we establish new rules for our algorithms and the trading team.

We notice that many companies in our sector do insufficient research on their strategies, making them vulnerable to changing market conditions and potentially leading to a limited shelf life for their systems. We believe that thorough research forms the basis for a successful and sustainable trading strategy. We continuously expand our platform based on input from our research department and adapt to new technologies, such as implementing machine learning. If there is a good idea, we strive to realize it!

We can proudly state that our company’s development department has reached a level where we surpass our competitors in the AIFM sector. We have built our own trading engine from the ground up that can process multiple strategies and connect with various brokers or trading software such as Interactive Brokers, Tradestation, Exante or any Metatrader 4 and Metatrader 5 broker. Additionally, we have developed hedgers that can operate on multiple exchanges.