Long tail risk and positive expectancy strategies

Discussion in 'Options' started by AlphaTango, Sep 7, 2018.

  1. Has anyone had any success with strategies that have a positive downside exposure(to events like Aug'15, Jan'16 , Feb'18 etc.) and simultaneously have a net positive long term expectancy?
     
    tommcginnis likes this.
  2. Robert Morse

    Robert Morse Sponsor

    From the side of an investor or allocator, the holy grail would be to find this type of strategy that would break even or make very small positive returns during up markets and have outside returns during large drops. I have not found one yet,
     
  3. srinir

    srinir

    Over the long run trend following has similar characteristics (long tail risk, +ve expectancy). This strategy suffers in short term negative momentum
     
  4. Thanks Srinir.
    I'm assuming that's in delta 1 space. What's your experience using trend following in options? E.g. would you bias your flies in the direction of trend?
     
    tommcginnis likes this.
  5. Robert Morse

    Robert Morse Sponsor

    Sorry, but I have to disagree. 2013 was a banner year for Trend following CTAs. The market was way up. I don't see the correlation to making money when the market reverses a trend.
     
  6. Robert Morse

    Robert Morse Sponsor

    This term generally refers to option desks that take no directional plays and only arb the banking function of where they can borrow hard to borrow stocks vs the general institutional client. Delta one trading would not benefit from a down market. They trade reversal/conversion spreads hedged with the stock.
     
  7. oldmonk

    oldmonk

    tommcginnis likes this.
  8. cheers oldmonk.
     
  9. Robert Morse

    Robert Morse Sponsor

  10. oldmonk

    oldmonk

    I have no idea of their returns. Just found the report interesting.
     
    #10     Sep 7, 2018