Our mission is to provide consistent returns with controlled and limited exposure to risk. We actively employ structured hedges to keep deviations and tail-risk minimal. We ferret out exceptional opportunities in derivative markets and aggressively pursue undervalued securities.

By patiently targeting time and volatility premiums, we generate income while retaining strict positional barriers.

Keeping with our fundamental objectives, we value opportunity, overstretched markets, and patience. Specifically, we build well-timed directional positions in various asset classes; couple them with an eye on mean reversion; and allow for overextended volatility and time premiums to be sold through the pricing of risk.

 

 

 

  
 

We control for and benefit from the many faces of market distributions (as shown below).

Our strategy is built on a solid understanding of the mathematics and fundamentals that move the market. We measure positions on a risk-adjusted basis and look meticulously for potential arbitrage. Recurring themes include:

  • Recognizing the meaningful influence implied volatility has on option pricing.
  • Recognizing that market making requires S&P futures to price latent monthly gains of ten percent plus, despite the near impossibility in such a time frame.
  • Recognizing that option pricing assumes investors care about the five input variables; however, in the long-run, true pricing is strategy specific.
  • Recognizing that moneyness and the options smile fix a point in time, and do not price volatility dynamically.

 

Drawing on the structure of the market, we begin our investment process by searching for relative and true value. From there, we direct positional considerations to ever-changing option deltas and gammas. We measure the relationship of an options price to its underlying, both in terms of correlation (delta) and rate of change of said correlation (gamma).  This allows for further opportunity in divesting risk and attracting seamless capital appreciation.

Overall, our derivatives strategies allow for multiple positional directives with limited exposure to adverse market conditions. While investments may involve possible substantial loss of initial capital, we have created a fund that addresses many of the issues on investors’ minds. That is, we pursue consistent long-term capital appreciation in a fashion non-correlated to market conditions. In essence, our mission is that of a true hedged fund.

 

 
 
108-18 72nd Ave. (2nd Fl.) Forest Hills, NY 11375 .,....Main: 203-856-4119 .,....Email: DMC@davidmatthewscapital.com
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