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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.

S&P500-Overlay (data since 1996)

Updated: 29.05.20 Strategie EuroStoxx50
1 year -15.82% 11.34%
3 years -6.52% 8.18%
Since 1996:
Performance (%p.a.) 5.20% 6.81%
Mod. Sharpe-Ratio 0.91 0.35
Max. Drawdown -26.66% -56.78%

The strategy’s application on the S&P500 (since 1996) also shows attractive results regarding its risk-return ratio: the approach achieved a significantly better mod. Sharpe-Ratio and a max. drawdown that is half the size of the S&P500. This result was accomplished with only slightly decreased annual return compared to the underlying market.

Please note:
With special funds, the target volatility can be adjusted to our clients' preferences.

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.

Market Noise as opportunity for volatility based strategies

Following the digitalization (global access to the markets), there is an increasing number of market participants with different targets. Their actions lead to erratic price movements on the main markets and result in elevated “market noise”.

„Market noise“ can be described as the inefficiency in pricing: the more erratic the “way” is within an observed period (from starting price to the closing price) the higher the noise is.

A noisy market results in less clear (sustained) trend periods and thus to prices that move sidewards approx. 70% of the time. These situations are especially frustrating to mid- and long-term investors (long/short), since they increase risk (volatility), but deliver no return to these market participants.

The ARIAD Short-Vola Premium Strategy is predestined to generate attractive returns with negligible volatility by writing options. Additionally, this approach is also suited to benefit from clear trend periods.

The Investment Process in Detail

  • No adding other asset classes
  • No share selection
  • Minimal liquidity risks (quoted derivatives)
  • Minimum currency risks
  • No issuer risks
  • Adjustable risk management

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.

Potential strategy variations

  • Application on equity or bond markets
  • Utilizing the option premiums to finance a permanent hedge (OTM-puts)
  • Addition of a systematic trend component for increasing potential returns in clear trend periods.

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


©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.