Margin/equity, for CPOs/CTAs

[heech]

Quote from Arb Under Par:

You're going to get screened out by most CTA investors by being an option seller...but good luck. What is going to set you apart from the 20+ other CTA's out there doing the same thing?

Well, that'd definitely be disappointing.

I'd say the instruments I'm trading may be similar (options) to others "doing the same thing", but the strategy emphasizes volatility arbitrage rather than selling deep out-the-money puts/calls and praying lady luck is on my side.

In fact, my strategy only opens new positions with at the money options (or slightly OTM for diversification). Based on what I've seen from other CTAs selling option premium, that makes me pretty unique.

Large, multiple std dev, fat tail moves in the underlying are usually a *positive* for my strategy. I think that also makes me pretty unique.

 

[heech]

For that matter, it's well known the classic return distribution for a premium seller is a long series of small positive returns, punctuated by rare but catastrophic losses.

This is why "traditional" option selling CTAs/strategies are so dangerous, and I personally would never invest in one... their historical record is useless. You have no way of knowing whether their historical track record looks good because they actually have an edge, or simply because the fat-tail hasn't caught up to them yet.

My return distribution shouldn't look like that. I'm really short volatility *as* volatility... so I'm more or less expecting a traditional bell curve, with significant alpha.

If my personal proprietary account was funded to an average ME of 20%... I'd be currently trading a nominal account of $3.5 million. So, hopefully that's a significant enough AUM number for an emerging CTA to attract some attention. I just want to get past the screening filter.

 

[Arb Under Par]

Everyone is going to have different screening filters. It's good to hear that you aren't a "traditional" premium seller, as you will have to constantly try to differentiate yourself from that. Good luck with launching...it's a tough environment for attracting capital, but hopefully you'll have some success.

 

[heech]

Thank you sir.

Based on some of your past posts, I get the feeling you're up in the foothill/Tahoe area.

I'm fortunate that I'm coming into this off of a successful career, and will have no complaints even if I just keep trading prop.

I also have numerous contacts in the angel community in northern California (very possible we know some of the same people), so if I do get to the point where I want to raise money... I'm optimistic.

... of course, all of this is assuming my strategy keeps performing. BIG assumption.