Somewhat related to this topic. Does anybody have material on what strategy GSG employs? They trade mainly index options. Do they just spread different sections of the ES vol surface, essentially? http://www.globalsigmagroup.com/Past_Performance/Past.html
This is the ranking where I found them. Ranked by YTD, they really stand out on a return/drawdown basis. However, they are being compared to very different investment programs. Most are diversified futures trend followers. They currently ranked number 6. However, the rest of the field is mostly diversified futures trend followers.
I agree with you. I sold puts in Oil service companies in the last 6 months using strategy similar to yours and did well. Yes, I am also waiting for the 10% correction to move into that. You are good but don't be too critical to the others. The OTM strategy works well on beaten down stocks with high IV, like oil service companies this last year and should provide a reasonable positive return, so the others are not wrong in following the OTM strategy.
I think they are mainly selling OTM S&P index put with 90-95% chance of expiring OTM. I have seen one of their interviews and I briefly talked to their new COO(or CFO). They have a prop model to calculate the probability which I guess is very close to using delta. When the market goes against their positions they can delta hedge or roll which I am not able to guess what the guidelines are. BTW, I do not think they are able to avoid event risks like the last week of Feb/2007 which might give them a 10% drawdown very easily. They also claim they would sell OTM call from time to time which I think plays a minor role in their portfolios. They are applying or at least trying to apply the same techniques to bond and commodity options. Those are my thoughts and I could be very off in my guesses though. I think they are a more conservative version of Karen.
Interesting. I am aware of people doing an occasional put buy like Taleb recommends. Never heard of an occasional selling of calls. For 400K min. notional investment, I would hope they are conservative. Their risk ratios are phenomenal. Thanks for the response and welcome to ET.
I think the worry of event risk is why they are exploring bond option strategies which will not suffer from equity market black-swans. Despite the intrinsic risks facing every single put option writer, they are still doing much better than most of the volatility selling funds I have seen.
Is there a possibility that it's because they're taking on way more risk than most of the volatility selling funds you've seen? I mean these things are 90-95% probability bets - much like the CHF peg was.
I wish someone would compare the returns of naked put or call selling vs. credit spreads from a profitability standpoint....what would the two equity curves look like ? Surely, the naked strategy would show a steeper ramp-up, but also show some ugly drawdowns.