The Volatility Hedge

Question 1 - What is the minimum required capital to implement this strategy?

Because of values of ETF and ETN (*) that are required to implement that strategy, and the expected return compared to the annual fees, a minimum amount of 1 000 000 euros / dollars is required. In the Performances page, there is a calculator and a simulator that can be used to quantify the estimated return you can get from this service, based on average or estimated rentability that may occur: do not hesitate to use them.

 

Question 2 - Is this strategy relevant to my situation, to my goals?

It is very difficult to formally answer this question, therefore, if you are looking for a smooth strategy, with good hedge of the S&P 500 index (covering periods of decrease as well as increase of volatility), then this strategy makes sense for you. This strategy may be implemented as a hedge for the S&P 500 stocks index, but also alone, as explained in question 21.

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Question 3 - What are the geographical zone and the markets which are relevant for that strategy?

This strategy is fully focused and centered on NYSE and NASDAQ American stocks markets and CBOE options markets. Its goal is to provide a hedge for the S&P 500 index, using ETF and ETN (*) available and based on CBOE options market.

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Question 4 - For an European investor with investments mainly in Europe / euros zone (for example NYSE - Euronext), does this strategy provide a hedge for index like CAC 40, Euro Stoxx 50, DAX?

Even if stocks indexes are in general correlated, they might evolve differently one versus another. Moreover, their evolutions depends on currency relative values and strengths. The proposed hedge is specific for the S&P 500 index. However, it can be implemented on its own, and for all currencies, cf. questions 5 and 20.

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Question 5 - American stocks markets and dollar are key for that strategy, how therefore to use that strategy as an investor on another currency zone?

The strategy - either implemented alone, cf. question 21 or for hedging a stocks portfolio - is totally suited, because of its structure and the brokers to implement it, to a multi-currency management. It is explained what to do for investors outside dollar zone.

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Question 6 - Does this strategy provide a hedge against inflation?

Because of the relatively new (less that fifteen years) existence of the index, ETF and ETN (*), and concepts which are used, it is not possible to backtest this strategy during periods with substantial / high inflation. Moreover, it is not its purpose.

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Question 7 - Does this strategy provide a hedge against bonds markets krach and rise of bonds yields?

The last twenty years have been characterized overall by an increase in bonds until 2020, and a – sharp – decline since then. During this period, the performance of the strategy does not show any correlation with interest rates and bond prices; moreover, this is not the goal of this strategy.

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Question 8 - Does this strategy provide a hedge against stocks krach?

Absolutely, it is its main purpose.

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Question 9 - Is 30 000 € / year a profitable investment for the Professional offer?

During the last 10 years, the actual average annual return was above 30% per year: 1 000 000 euros invested on January 1st, 2007 would be approximatively 11 400 000 euros on December 31st, 2016, approximatively 31 600 000 euros on December 31st, 2019, approximatively 69 600 000 euros on December 31st, 2020, and approximatively 169 900 000 euros on December 31st, 2023. The profitability is rather easy to quantify, for example for a high number of your customers whose funds are managed and/or covered by this strategy, and even more for more higher amounts. In the Performances page, there is a simulator and a calculator that can be used to quantify the estimated return you can get from this service, based on average or estimated rentability that may occur: do not hesitate to use them.

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Question 10 - Is 75 000 € / year a profitable investment for the Corporate offer?

During the last 10 years, the actual average annual return was above 30% per year: 10 M euros invested on January 1st, 2007 would be approximatively 114 M euros on December 31st, 2016, approximatively 316 M euros on December 31st, 2019, approximatively 696 M euros on December 31st, 2020, and approximatively  1 699 M euros on December 31st, 2023. The profitability is rather easy to quantify, for example for a high number of your customers whose funds are managed and/or covered by this strategy, and even more for more higher amounts. In the Performances page, there is a simulator and a calculator that can be used to quantify the estimated return you can get from this service, based on average or estimated rentability that may occur: do not hesitate to use them.

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Question 11 - In the Initiate page, standard prices of 30 000 € for Professional service and 75 000 € for Corporate service are indicated. Are they fixed prices? Is it possible to have variable prices, in particular linked to the performance?

The prices indicated should be considered as standard/base prices for the start of negotiations. It is possible to define a price based on performance, with a fixed part and a variable part that increases with performance. In any case, the value proposition is a simple and fair offer that delivers a lot of value. The subject of the price will be evaluated and finalized during the negotiations.

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Question 12 - Is it possible to subscribe for a non-integer number of years, for example to plan a clearly defined withdrawal of funds?

Please subscribe to cover the whole year preceding the moment you want the end of the service, and let us know the required end date during the exchanges, so that to clarify your request. The contract and the subscription price will be amended accordingly.

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Question 13 - What does a few transactions per year precisely mean?

The dynamics of the strategy is rather low, and the transactions to be implemented every year are limited: in general below 10 transactions per years, with an average of 5 transactions per year.

 

Question 14 - Are the subscription prices guaranteed? Will they increase?

It is not possible to guarantee that the prices will not increase over time. However, by respect and long term relationships for our customers, it is guaranteed for all of them that the subscription price will remain stable - equal to the initial subscription price - for continued yearly subscriptions without interruption.

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Question 15 - What is the content of the service available via subscription?

The core of the service consists of alerts for opening and closing hedging positions. They are sent after closing of American markets, and are intended to be implemented at the opening of the next trading day. In addition, at least a monthly report is sent for updates about main events during the last past month. If necessary, other reports can be sent depending on the context, events, etc. Some practical elements so that every subscriber can easily implement the strategy are also available and communicated.

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Question 16 - Is there a hotline, is it possible to ask questions?

We are very pleased to help you have the best use and experience of the service, in addition to documents, guides and periodic alerts. However, we do not provide personalized recommendations, the provided alerts are the result of applying the standard rules of the strategy; they are not specific to a customer.

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Question 17 - Are you a Wealth Management Advisor?

We are not a Wealth Management Advisor, we are not intended to provide dedicated advices. The proposed service only provides a strategy whose aim is to hedge the S&P 500 stocks index using some ETF and ETN (*).

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Question 18 - What guarantee and what certainty can we have that the future expected performances will be equivalent to the past actual performances?

Of course, no guarantee can exist about future performance, however some elements may be taken into account about the proposed strategy:

• It is based on detailed and strong analyses, as well as state of the art research on volatility topic.

• It has been proven over time during many years.

• It proved its resilience during various markets conditions, in particular very critical ones.

• It is clearly decorrelated from stocks markets, the performances are not linked to increases or decreases of stock markets.

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Question 19 - What are the risks of the proposed strategy?

Excluding systemic risks and very general events with major impacts on markets (in particular middle to long closure of markets), it may happen substantial temporary drawdowns (with decreases of about 30%) of used ETF and ETN (*), as explained in available performance elements. The proposed money management takes those figures and this volatility into account.

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Question 20 - Is it relevant to implement the strategy alone, or is it better to implement it as hedge for the S&P 500 stocks index?

By design, the strategy is intended to provide a hedge for the S&P 500 stocks index. However, as it provides a very satisfying profitability over time, it may be implemented alone. The question 27 contains useful and related information, and the Performance section also. With these elements, you may have a more detailed idea of what is really suited for you, depending on your goals, your investment strategy, your management and tolerance to risks, etc.

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Question 21 - What are the differences between the Professional offer and the Corporate offer?

The two offers are based on the implementation of the same method, the same algorithms, the same money management, and provide the same results and the same profitability. The only difference is related to balance sheet size / revenues / funds which are managed by your company, The limits of Professional offer are:

• Balance sheet size: 200 M euros / dollars

• Revenue: 200 M euros / dollars

• Funds under management: 200 M euros / dollars 

 

Question 22 - What is the required reactivity when an alert is sent, when a change is recommended? Is it mandatory to implement it before opening of next trading day?

It is recommended to implement the changes before the opening of the next trading day, at the opening. However, it is in general not a problem to delay orders for a - very - few days, because the dynamics of the strategy is slow, and the overall results are not dependant from delays for opening or closing of positions. There are some exceptions in rare huge short term market variations, such situations will be pointed out in alerts.

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Question 23 - What is the liquidity of the proposed strategy?

The liquidity is very high, because the ETF and ETN (*) to use are proposed by major companies, and it is possible to hedge portfolio of millions or dozens of millions of dollars or Euros, without any impact on the market. In addition, the ETF and ETN (*) are only bought and then sold, there is no short positions, without buy-ins nor short maintenance interests.

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Question 24 - Is it possible to know more about implemented rules and algorithms? Is it possible to get historical transactions in order to evaluate and see on a practical way what does the strategy looks like?

The strategy is not opened, and the relevance of registering a US Patent was evaluated. Neither algorithms nor actual transactions can be communicated.

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Question 25 - Will the strategy systematically covers and evolves contrarily to the S&P 500 index? What is in addition hedging using a decorrelated strategy?

The main advantage of the proposed strategy is that it evolves on a highly decorrelated way from S&P 500 stocks index. It is important to keep in mind that a high decorrelation does not mean that the strategy will evolves on the contrary to the S&P 500 index (for that, no need for a strategy, a simple bear product on S&P 500 is perfectly suited). It means that the evolution of S&P 500 and the evolution of the strategy are not linked, and that they do not depend the one to the other. In some situations, both increase ; in other situations, both decrease ; in other kinds of situations, the one decreases whereas the other increases, and vice-versa. Please refer to Performances section to assess the results on long periods of time, presented on yearly, monthly, and weekly buckets.

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Question 26 - In which languages is the service available?

English and French are the official languages for contracts, exchanges and communications between us and our customers.

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Question 27 - Are the performances presented in the Performance page real or simulated? How long has this service existed and is available for subscription?

The performances have been simulated and backtested prior to year 2014, and are real since year 2015 ; the real performances have been implemented in real life, in real trading accounts, by customers, beta customers, and the designer of this service. This service has been designed and built during years 2013 and 2014, then fine-tuned and finalized during years 2015 and first semester 2016. It is live since second semester 2016 and beta customers are using it since that moment. The service is fully accessible worldwide as a subscription since March 2017.

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Question 28 - The actual performances of the year 2017 seems to be significantly higher than other years, an you explain why?

The year 2017 has been characterized by a behavior of the actors on the volatility markets very exactly as expected by the models: the errors of appreciation and anticipation which are the base of the performances and the realized gains happened and go on as expected, which explains the very satisfactory performance. That is why we are beyond the annual statistical averages. A remark on this behavior: it is not related to bullish direction and optimism on the equity markets, for example in 2008 - which had been a black year on equity markets - such behavior was also identified and the performance of the strategy was also very satisfying. Nevertheless, please keep in mind that these performances take place with the intrinsic volatility of investments on ETFs and ETNs (*) which are used: since the beginning of 2017, there have been - just like all the other years - significant but very transitory drawdown, of 20% in one month and 15% in one week; this volatility is normal and consistent with the models, we must be very serene in relation to it.

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Question 29 - The actual performances of the years 2014 and 2015 were bad and negative, can you explain why?

The year 2014 and to a lesser extent the year 2015, on the contrary, did not allow the very traditional and very recurrent behaviors on the market of volatility to be implemented, as it had been the case systematically since 2004. These markets have been very turbulent, and stable situations have taken much longer to return than usual: this explains the poor performance. These behaviors and the lack of correlation - correlations being the basis of this strategy - were surprising. This is not fundamentally a problem, because on the whole the gains of the other years are very much higher than these losses.

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Question 30 - The performances year after year are very different, some are very high, others are quite low. What is the cause of this phenomenon? Would it be possible to have smoother and more regular returns?
The performances have their origin in the errors of assessment and anticipation of the volatility options market. These errors are very variable over time, which explains why the performances are different depending on years, and depending on months. Nevertheless, statistically and over long periods, the performances are real. This has always been the case since 2004, and is verified year after year.

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Question 31 - What performances can we reasonably expect for the coming years?

It is very difficult to know what the future will be, but an average performance of around 30% per year seems quite realistic. Moreover, statistically, it is usually reached in a few months, so a conservative investor will be able to appreciate such a performance as soon as it has been reached, and lock in the earnings.

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Question 32 - Previously, it was possible to subscribe as an individual investor. Why is it no longer possible?

We realized a posteriori that the complexity of the strategy and the very great rigor required for the implementation is not compatible with an individual offer. In particular because of the necessary tolerance for risks and strong fluctuations. As a result, this offer is no longer proposed.

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Question 33 - Is this service reserved for companies in the financial sector, or is it more general?

This service is general, it can be used by companies from all sectors of activity, wishing to benefit from such performances.

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Question 34 - I am interested and not ready to subscribe at that moment, but I would like to keep informed of evolution of performances, what should I do?

You can follow up and regularly visit this site to keep informed and monitor the performances, which are communicated after the end of each month. Should you have any questions, feel free to contact us to have all required clarifications and details: we will be very pleased to communicate and exchange with you.

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(*) ETF : Exchange Traded Fund / ETN : Exchange Traded Note

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