We Cannot See Into the Future - But We Are Prepared for It.
1. Introduction
| In Short | |
|---|---|
| Asset Class | the strategy can be implemented on equity indices (EuroStoxx50, S&P500, Nikkei225) and also on bond markets (BUND, T-Notes, BOBL) |
| Investment Goal | market-neutral permanent premium generation |
| Implementation | systematically writing options on major stock indices in combination with a rule-based risk management (delta-hedging, volatility limits, value-at-risk) |
The ARIAD Short-Vola Premium Strategy
The continuing low base rates mean that no-risk and low-risk investments have become increasingly unattractive. In particular, the disappearance of the pension market has put private and professional investors in a seemingly hopeless predicament:
"When looking for ongoing returns,
investors are forced to risk an essential need: capital preservation"
Positive Returns in All Market Conditions
With the ARIAD Short-Vola Premium Strategy, we want to offer investors a convincing alternative by exploiting the volatility of the markets. The systematically generated option premiums can be utilized by investors, in order to hedge their portfolio (financing OTM-puts) or to serve as performance buffer.
“The advantage of systematically writing options shows itself mainly in challenging market environments, as shown in the following backtest results.”
Attractive especially during difficult times
2. Performance
Attractive returns with low volatility and small drawdowns in difficult periods
Especially in difficult market environments like 2008/09, 2015/2016 and 2020 (yellow marks), the strategy proves that market-neutral systematic option writing can provide significant outperformance relative to the underlying market.
EuroStoxx50-Overlay (data since 2013)
| Updated: 29.05.20 | Strategie | EuroStoxx50 |
|---|---|---|
| 1 year | -2.06% | -6.74% |
| 3 years | 0.02% | -4.67% |
| Since 2013: | ||
| Performance (%p.a.) | 4.10% | 2.97% |
| Mod. Sharpe-Ratio | 1.14 | 0.15 |
| Max. Drawdown | -5.38% | -38.27% |
Within the observed period, the strategy achieved a more than 12-times better mod. Sharpe-Ratio and a fraction (1/7) of the max. drawdown relative to the underlying EuroStoxx50 (TR).
This systematic approach could even outperform the EuroStoxx50 (TR) in the backtest.
The Investment Concept
3. Investment Idea
Creating an Alternative Performance Source
The ARIAD Short-Vola Premium Strategy (systematically writing options) tries to achieve attractive returns with relatively low volatility in all market conditions. The approach takes into account the underlying markets’ volatility and the short-term trend of the market (e.g. choosing the strikes & quantity of the options to be written), which is also important when hedging the portfolio delta with futures for a market-neutral position.
The Investment Process in Detail
4. The Process
Systematic investment process with a rule-based risk management
Each month on the date of expiration, the strategy writes new options (calls + puts) with a 1-month duration. The strike prices are based on the implicit volatility and the short-term trend of the underlying market. Only options with an attractive premium and an adequate risk-reward-potential are written. This approach enables investors to benefit from sidewards moving markets.
When the premium of the written option crosses a certain minimum threshold within the monthly duration, the position will be closed and a new one with an adjusted strike may be written for additional return.
Example for the placement of strikes (incl. delta-hedging with futures)
The risk-management is rule-based and performed daily. In volatile periods, the delta of the strategy portfolio is hedged via long/short futures to restore a market-neutral positioning. If the volatility exceeds certain thresholds, the portfolio positions will be closed completely.
5. Webinar
+++ Webinar on the Strategy +++
Do you want an online presentation including a round of questions to learn more about the ARIAD Patent Equity Strategy?
Then please send an email with the reference "Webinar ARIAD Patent Share Strategy" to info@ariad.de
Also of interest:
The future in your portfolio
Disclaimer
©2020 ARIAD Asset Management GmbH
This publication is not a sales prospect in the meaning of the law, but a commercial representation that provides further information. It does not constitute a recommendation for action and does not replace individual investment advice by a bank/sales partner or either fiscal or legal counselling. Shares are sold exclusively on the basis of the current sales prospectus and key investor information. These and the current annual and semi-annual reports are available free of charge in German at Monega Kapitalanlagegesellschaft mbH, Stolkgasse 25-45, 50667 Cologne, and on the Internet at www.monega.de. In the sales prospectus, investment objectives, fees, risks and other important fund information are described in detail. Please read this carefully.
The statements on the market situation constitute our own view of the circumstances described. This does not imply any general validity or investment advice or recommendation. The publication may not be construed as a sale offer or an invitation to submit an offer for the purchase of securities, and does not in any way replace the advice required before each stock purchasing decision. The statements made in the publication are subject to change without notice. Despite careful selection of sources and examination of the contents, ARIAD Asset Management GmbH assumes no liability or guarantee for the correctness and completeness of the information provided in this publication.