OddTrader plays ES Collars for vacationers

Why CTAs?

http://www.managedfuturestodaymag.com/managed-futures-vs-stocks
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Diversification is only possible between assets with low correlation. Numerous studies (see “Additional resources” below) have shown the ability of managed futures to reduce portfolio volatility precisely because of their lack of correlation with other assets. Since 1980, for example, the BarclayHedge (www.barclayhedge.com) CTA Index has a correlation of +0.01 to the S&P 500, +0.11 to U.S. bonds, and -0.01 to world bonds — all values that reflect no meaningful connection between managed futures and these markets. This is what allows managed futures to reduce the volatility of a larger investment portfolio that includes stocks, bonds, and other assets.

Another advantage of managed futures is their ability to generate returns precisely when markets are experiencing extreme drawdowns. This tendency was clear during the 2008 financial panic.
UQ

http://www.barclayhedge.com/research/indices/cta/sub/cta.html
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Barclay CTA Index

The Barclay CTA Index is a leading industry benchmark of representative performance of commodity trading advisors. There are currently 533 programs included in the calculation of the Barclay CTA Index for the year 2010, which is unweighted and rebalanced at the beginning of each year.

To qualify for inclusion in the CTA Index, an advisor must have four years of prior performance history. Additional programs introduced by qualified advisors are not added to the Index until after their second year. These restrictions, which offset the high turnover rates of trading advisors as well as their artificially high short-term performance records, ensure the accuracy and reliability of the Barclay CTA Index.

To see historical data on the number of programs included in the Barclay CTA Index, click here
1980 63.69% 1991 3.73% 2002 12.36%
1981 23.90% 1992 -0.91% 2003 8.69%
1982 16.68% 1993 10.37% 2004 3.30%
1983 23.75% 1994 -0.65% 2005 1.71%
1984 8.74% 1995 13.64% 2006 3.54%
1985 25.50% 1996 9.12% 2007 7.64%
1986 3.82% 1997 10.89% 2008 14.09%
1987 57.27% 1998 7.01% 2009 -0.10%
1988 21.76% 1999 -1.19% 2010 7.03%
1989 1.80% 2000 7.86% 2011 -0.28%†
1990 21.02% 2001 0.84%
†Estimated YTD performance for 2011 calculated with reported data as of February-7-2011 10:38 US CST
At a Glance from Jan 1980
Compound Annual Return 11.61%
Sharpe Ratio 0.42
Worst Drawdown 15.66%
Correlation vs S&P 500 0.01
Correlation vs US Bonds 0.11
Correlation vs World Bonds 0.00
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About 30 years performance of CTA Index vs S&P 500 Index:

http://managedfuturestodaymag.com/30-years-managed-futures

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Table 1: Stocks Down, Managed Futures Up

As a result, the long-term profitability of managed futures not only opens the possibility of creating excess returns in an investor’s overall portfolio, but reducing the volatility of those returns as well. Table 1 shows that since 1980 the S&P 500 has had seven losing years (yellow) while the BarclayHedge CTA index has had four (aqua). The only time a down year in the CTA index year coincided with a losing year in the S&P 500 was 1994, when the CTA index lost -0.65 percent and the S&P 500 lost -1.54 percent. In all other down S&P years, including the three-year losing streak from 2000-2002, the CTA index posted gains.

The final kicker for investors unfamiliar with the managed futures industry is that, overall, managed futures returns have — on average — been less volatile than the stock market since 1980. The maximum drawdown for the CTA index has been around 16 percent, vs. more than 50 percent for the S&P 500.

UQ
 
http://www.elitetrader.com/vb/showthread.php?s=&postid=3086321#post3086321
Quote from OddTrader:

After starting this thread below about my spare system, I now have a better understanding of developing systems.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=213261

There should be basically two very different types of trading systems: A. Stand Alone; B. Portfolio Hedge. (as per Managed Trading by Schwager)

Most retail traders would be mainly interested in developing stand-alone type systems in order to target much higher returns (above 40% pa), with much higher drawdowns (as long as acceptable to the system trader himself). Seeking greater alpha would be very important. I think my main system is this A type. I think many HFs would run A type systems.

However I believe many professional traders would be more interested in developing portfolio-hedge type systems targeting industry norm returns (about 20% pa before/after fees), with much smaller drawdowns (must be acceptable by institutional investors). Its performance (un-)correlation aganist S&P 500 would be more important for them. I think my spare system should be this B type. I think many CTAs actually run type B systems.

Just my thoughts!

http://www.elitetrader.com/vb/showt...0&highlight=research development&pagenumber=2
More...

The trading system in this thread, due to its small returns as I think, would not be interested by most retail traders who are alpha hunters aggressively seeking excess returns (type A above).

Instead, this thread trading ES against S&P 500 Index (as benchmark) is for a type B system very much about managing beta risk by providing (similar to what many CTAs doing):
1. not only negative correlation during S&P 500 market either declining or crash,
2. but also positive correlation during S&P 500 market moving upwards either slowly/steadily or dramatically/progressively.

Perhaps due to these unique characteristics, Schwager in his book Managing Trading (written solely about CTAs/Managed-Futures trading) mentioned/ discussed nearly nothing about either beta or alpha (surely these conventional measures would be applicable to CTAs in certain ways).
 
Update: Including correction of previous signals (Based on historical prices of SPY):

Wk 10Jan2011 Long 1271.40;
Wk 17Jan2011 Long 1293.00;
Wk 24Jan2011 Long 1283.70;
Wk 31Jan2011 Short 1277.20;
Wk 07Feb2011 Long 1311.50; and
Wk 14Feb2011 Long 1333.10.
 
Quote from OddTrader:

http://www.elitetrader.com/vb/showthread.php?s=&postid=3086321#post3086321

The trading system in this thread, due to its small returns as I think, would not be interested by most retail traders who are alpha hunters aggressively seeking excess returns (type A above).

Instead, this thread trading ES against S&P 500 Index (as benchmark) is for a type B system very much about managing beta risk by providing (similar to what many CTAs doing):
1. not only negative correlation during S&P 500 market either declining or crash,
2. but also positive correlation during S&P 500 market moving upwards either slowly/steadily or dramatically/progressively.

Perhaps due to these unique characteristics, Schwager in his book Managing Trading (written solely about CTAs/Managed-Futures trading) mentioned/ discussed nearly nothing about either beta or alpha (surely these conventional measures would be applicable to CTAs in certain ways).
More...

Should be good and useful for hedging systemic risk.

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http://en.wikipedia.org/wiki/Systemic_risk

In finance, systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system.[1][2] It can be defined as "financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries".[3] It refers to the risks imposed by interlinkages and interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a cascading failure, which could potentially bankrupt or bring down the entire system or market.[4] It is also sometimes erroneously referred to as "systematic risk".

UQ

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http://www.businessdictionary.com/definition/systemic-risk.html

1. General: Probability of loss or failure common to all members of a class or group or to an entire system. Erroneously also called systematic risk.

2. Investing and trading: Probability of loss common to all businesses and investment opportunities, and inherent in all dealings in a market. Also called market risk, it cannot be circumvented or eliminated by portfolio diversification but may be reduced by hedging. In stock markets, systemic risk is measured by beta-coefficient.

UQ
 
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