Options can be overvalued, undervalued or fairly valued. By “overvalued”, we mean that the average return per dollar invested by purchasing these is substantially less than one dollar. This may occur due to institutional and other programmatic buyers, who must buy for hedging – regardless of price. Hence those options may become candidates for selling. Similarly, many options are oversold due to collar and buy-write programs, and hence these options become undervalued and may become candidates for buying. The strategies highlighted below illustrate the advisor’s efforts to capture alpha based on the over/under valuations typically observed in an active marketplace.
Alpha Z Advisors’ proprietary methodology employs five core strategies. They are as follows:
- Presidential election market effects and January turn of the year effect
- Mean reversion in stock prices (which are similar to those used in NFL gaming forecasts)
- US calendar anomalies (predictable money flows from the behavior of individual investors)
- Institutional Practices (money flows from companies themselves and institutional hedging)
- Capturing option biases (based on ideas that originate in horse racing handicapping behavior)
For more specific details please refer to the attached white paper from Futures Magazine: Strategies for Trading index Futures used in the “Battle of the Quants Futures Competition” winning Alpha Z Advisors program.
These strategies, when used in concert, work together to provide smoothed returns. While draw-downs can and do occur, the Advisor attempts to deploy corrective actions which are targeted to produce a recovery of value. An illustration of this behavior can be seen in the transition from an extremely difficult one-way market in August 2015 to a better-balanced and hedged return to profitability in September and October 2015.
Execution and Account Types. The Manager uses professional institutional computerized execution brokers at several clearing firms. We have the ability to tailor our trading to your account specifics.