Not sure how you came up with 15% net return for investor. If we assume a 6% monthly return (quite hard to sustain), the net to investors would be 3.5% monthly, if the performance fee is 50% of anything over 1% monthly. (1+2.5%). That would be an annual total of 42%. Would you suggest 42% return with a max DD of 3.38% is not worth?? If we assume a 3% monthly return, the net to investor would still be 24% annually.
Can I keep my Sharpe ratio higher then 4 for the rest of the year?
- Thread starter macintash
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Not sure how you came up with 15% net return for investor. If we assume a 6% monthly return (quite hard to sustain), the net to investors would be 3.5% monthly, if the performance fee is 50% of anything over 1% monthly. (1+2.5%). That would be an annual total of 42%. Would you suggest 42% return with a max DD of 3.38% is not worth?? If we assume a 3% monthly return, the net to investor would still be 24% annually.
Quote from Epic:
BTW Macintash, I'm not trying to be a jerk here and I hate it when people here throw out speculative criticism, but now that you are suggesting managing OPM...
Your posted equity curve and risk metrics are highly suggestive of a premium selling system, e.g. short option straddles, OTM credit verticals, etc... Any due diligence team that sees a 4+ Sharpe and an equity curve that is flat for a few weeks and then suddenly rises sharply just leading up to the 3rd friday of the month, won't touch that system. Ditto if each large drawdown is followed by an immediate large spike. These systems are notorious for long periods of incredible and stable growth followed by a single unfortunate blow-up about 10-20X larger than the previous Max DD. These losses are also notoriously difficult to manage in real time, both technically and psychologically.
I'm not saying one way or the other, but if your system falls into this category, I would highly suggest that you reconsider managing OPM for now, especially as an unregistered fund. You might literally be weeks away from a >30% drawdown, accompanied by a lawsuit.
Again, I wasn't gonna say anything, but just in case you fit that description...
As stated several times before I will not go into detail what my strategy is, but I am getting your point on selling premium.
I thought you said you were approaching 50% YTD. I forgot about the 1% monthly hurdle, but a 60% fee still kills the returns. My program is at least top 20 in the nation for two years, and i still only charge 0/30. The thing is, no investor can reasonably assume that you max dd will never exceed 3.38%. The history isn't long enough yet. To answer your question, no. Industry guidelines suggest that high incentive fees result in exessive risk taking. Literally almost nobody would consider a fee that high.
Not requesting details. Just offering a word of caution.
As much as we all try to protect the recipe of our secret sauce, you should realize that those familiar with many different asset classes and root trading strategies can tell a lot about a system simply by looking at the equity curve relative to market movement.
Seriously, there are usually about three pieces of info needed to determine the core of a system.
Trade frequency
Equity curve
Asset class
Generically, strategies involving options (or pretty much any other convex payoffs) are very hard to analyze using conventional performance metrics. If you want to convince yourself that your strategy is bullet-proof, you want to run some historical scenarios. Make sure to include as many crisis cycles as you could, at least include the 1998, 2001 and all of the recent pains. If you do not have enough history for this particular instrument, come up with some beta or some other relationship and generate some synthetic history.
PS. while confidence is important, it's good to be paranoid about your strategies.
The concern of a 30% DD and an outlier market condition is something that should concern any trader no matter what you are trading especially if leverage is used in any way, in fact almost any asset class (stocks, bonds, metals etc) did have a DD exceeding 50% sometime in the last 30 years. While there are many ways to address that risk, I am keeping it simple for this strategy âa hard 10% stop lossâ in any given month. So letâs assume that I will have a 10% loss next month, my return for the year would be 35%, I wouldnât consider that bad. The chance of a 10% loss seems slim to me, but with markets you never know until after it happens.