Why isnt there a CTA out there doing this?

Discussion in 'Trading' started by bubbrubb, Aug 30, 2006.

  1. bubbrubb


    Or if there is, please let me know. The only one I found close is CKP out of Germany.

    If you're going to have a short vol fund, why not position it to use a larger number of smaller positions in uncorrelated markets? Instead of selling options, or straddles/strangles on just the US equity indices ala Ansbacher, why not sell options across 20-50 futures markets around the globe? That way you don't have the risk of any one market blowing you up like you do if you just sell against US Equity Indices? And you benefit from the non-correlation of the markets.

    There have been a TON of new option writing CTAs, and with vol this low, in my opinion it is going to be a graveyard sooner or later.

    Liberty brokerage out of Florida sells options on a number of futures markets, but does so discretionary and often directionally.

  2. There are funds doing this... the problem is that vol markets are correlated. Global vols move with equities when the market pukes. FI spreads/swaps are a good predictor of global vol. Allocation, margin calls, etc., are often the culprit. Marhedge did a story on the global vega funds.
  3. Uh... Long-term Capital Management....

    Uncorrelated...... markets are rarely always uncorrelated..

    If you lose in a few of those short markets, it wipes you out.
  4. bubbrubb


    thanks riskarb - have any names of funds for me?

    the only time (according to the study recently out - "The recent behavior of financial market volatility") that all markets have declined in vol simultaneously has been recently. . .


    have a link or copy of the marhedge study?
  5. ktm


    Some issues to consider in addition to those already mentioned:

    Liquidity in many markets isn't that great.

    Even with a global provider like IB, many markets are tough to reach, quotes go down... different platforms, strange local rules, etc...

    Many US entities are not permitted to trade foreign products.

    Assuming you are referring to diversified indexes, there is substantially more correlation than you might think between many international benchmarks.

    Even if you are able to get a good number of positions on every month, are the returns going to outperform other strategies consistently?

    I can tell you from first hand knowledge that not all premium sellers are created equal. Some take far greater risks than others and it isn't always obvious from the returns and drawdowns. Unfortunately it may take a market dislocation to clean house in this sector.