The Vix is an excellent suggestion. I watch it closely for my other trading, but have never traded it directly. I will investigate it further. Once again, the biggest question is how much is this "insurance" going to eat into the fund's performance. Thanks! Daryl
I've recently started using puts that are 10% away from the market. You have to have enough gain in your other trades to overcome these costs, obviously. While I initially never expected to get any of the costs of the puts back, assuming they'd just decay to zero, I've found that if the last trade before expiry that I have is a short position, I can then sell the puts with a few days left on them, and recover some costs, which was a pleasant surprise. But I don't count on that, and most of the time it doesn't happen. I don't worry about sudden upside moves, even though I may be short. I believe I can exit those in time without protection. (I use really wide stops) You could also look at adding trading in gold, which has a low correlation to the Naz. Contracts are liquid, and options are available. I'm moving in that direction myself, for the same reason.
Chanelops, I have looked at Gold before for the same reasons. However, I did not pursue it, because many traders feel that the relationship between gold (and oil as well) and the markets has significantly changed and historical correlation is no longer pertinent. I am not stating this as a fact, because I honestly don't know if this is true or not. In either case, I am watching the two markets and giving them some time. Thanks for the suggestions. Sincerely, Daryl
I presume your strategy is the naked selling of index premium. Savvy investors will have little interest in your product. Zero sum.
Some research papers, specifically the first one. http://web.archive.org/web/20060824054031/http://www.attaincapital.com/pdf/RiskIn9_11TypeMarket.pdf http://www.eurandom.tue.nl/abstracts_seminars/straetmans.pdf http://www.pkllc.com/pdf/Significant-Events.pdf
To better prepare for a black swan, I'd pay top dollars for an advanced prosumer DSLR camera - a black swan is rare luck to run into I'll take a full 4GB memory card load of photos... Not sure about other catastrophic events...
If this is the case, then Pabst is right. The other problem you'll have is that you have found a niche play that works well, but can not be a stand-alone strategy. For you to attempt to construct a portfolio around this strategy requires you to be an expert in portfolio theory and quantitative analysis. I assume this is not your forte, so your best bet would be to attempt to join a multi strat fund .
Build your HEAT threshold into your risk plan and then calculate your what-ifs and figure out how to make the most money with the lowest equity volatility.