Option Strategy Program
Please Read the Following Statement
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.
Our Option Strategy Program is unique in that it uses options with both financial and commodity futures as underlying assets. The program is designed to take advantage of the decay of time value, an adherent feature of options. Similar trading strategies have been employed by many CTAs in U.S., attracting investors with stable returns. However, our program is distinguished and innovative in that where as most of other CTAs’ trades are on options on major stock indices, we have extended the program to include options on commodity futures.
The program employs neither fundamentals nor technical for analysis. The program analyzes current and historical data for decision making. Data we monitor includes, but not limited to, volatilities of options and their underlying markets, and the probabilities that the prices of underlying assets would reach the predetermined levels within certain durations. Based on such analysis, we identify options that are either over or undervalued, relative levels of its volatilities, and skewness of Calls or Puts. The traders, then, implement the best feasible trading strategies on given condition. Strategy is mostly “ratio spreads”, but may also include naked positions, calendar spreads, and/or credit spreads. Those strategies are generally chosen discretionarily, based on scientific approach.
Ratio Spreads consist of purchasing and selling of the same type of options with different strike prices. To create a put ratio spread, the traders would buy puts at higher strike prices and sell greater number of puts at lower strike prices. The trade is initiated to earn credit. By structuring the spread in this fashion, we generally can expect to profit if the price of the underlying asset of the options either goes up, or stays the same. However, if the price of the underlying asset goes down, particularly as it approaches the strike price of the options sold, the strategy may incur substantial loss. For a call ratio spread, the characteristics of profits and losses in relation to the direction of the underlying asset are the opposite of those of a put ratio spread.
Since selling, or “writing” options, bears unlimited risk, the program scrutinizes risk-reward relations of each of the trading strategies. The program intends to maximize the return and minimize the risk by keeping the risk indicators such as Deltas and Gammas of the overall positions below certain levels. We also manage our risks by monitoring ratio of the aggregate margin to our net asset.