shareD -
el faro volatilityseason



 innovative volatility strategy

 where skills meet experience

strategy description

trend following of the term structure & premium harvesting

  elfaro volatility.season fund uses mathematical models to quantify the term structure of the volatility which could be compared to the yield curve of bonds and generates a return derived from the ETF pricing methodology and the trend behaviour of the term structure.
 the investment in volatility premiums is particularly important due to a disciplined, rule-based system.

new asset class

 volatility trading has become a popular niche in investing circles over the last several years. it is easy to understand why: with yields at record lows it has been challenging to find an alternative to equities that offers a respectable return.  
 some volatility-related Exchange Traded Products have been launched and are regularly among the most actively traded products. they offer a wide range of investment opportunities and have developed to an asset class accessible to retail investors as well.

risk management

 essentially, there are a few separate criteria to select an investment, and the system spends a not-insignificant time with no exposure when some of these criteria provide contradictory signals. 
 furthermore, the system uses disciplined methodologies in its construction in order to avoid unnecessary free parameters, and to keep the strategy as parsimonious as possible.

intelligent strategy

 volatility can be used as an asset class with intelligent strategies, for example by collecting the volatility risk premium. the investor benefits from the difference between expected and actual volatility. collection of the volatility risk premium is based on the fact that the implied volatility on a long-term average is systematically higher than the realised volatility. This means that on average a higher volatility is expected than actually occurs.

insurance premium

 the vola risk premium has a similar character to an insurance premium: insurance companies assume a risk and collect premiums in return. market participants are prepared to pay a premium that sellers of this insurance can collect. the premiums are then calculated by insurance companies in such a way that after deduction of the claims, a profit remains on average - exactly as is the case with volatility strategies

suitable for

 return chasing, more aggressive and risk conscious investor.

investment target

 average performance: 20% - 25% p.a
 volatility target: 20% - 25% p.a
 25 % loss of value possible during the investment
share31

advantages of
shareD -
el faro volatilityseason

new asset class

in recent years volatility has become a new asset class which can be added to existing portfolios to reduce portfolio risk especially in times of crisis and could be used as an absolute return strategy as well.

major trends

el faro volatilityseason uses the shape of the term structure of the volatility which could be compared with the yield curve of bonds to decide if the strategy goes long, short or flat volatility.

mean reverting

el faro volatilityseason takes advantage of the fact that volatility is mean reverting in the long run, i.e. volatility cannot grow to arbitrary high or low levels but eventually moves back towards its long-term mean. that makes volatility predictable.

logic return drivers

the investor in the market is willing to pay a premium to reduce the risk of his portfolio. It is a natural by-product of this fundamental market power, which is an aversion to uncertainty, and it is profitable because the sustained return is a justified reward for the investor's bearing of risk and acceptance of risk.

high volume

the instruments we use trade at very high volume. some reaches the same level like shares of Nike or Intel 

uncorrelated strategies

the fund weights strategies depending on their risk figures to combine multiple uncorrelated trading ideas.

implied vs. historical volatility

top.volatility%20implied%20vs%20realised%20V%202
 implied volatility (represented by the volatility index VIX) is often interpreted as the market’s expectation for the future volatility of a stock. implied volatility can be derived from the price of an option. 
 historical volatility is the volatility experienced by the underlying stock, stated in terms of annualized standard deviation as a percentage of the stock price.
 the difference between the implied volatility and realized historical volatility is called volatility risk premium. a positive difference between these two measures reflects the premium which goes to the sellers of volatility for taking the risk of absorbing volatility spikes. in other words, the price hedgers are prepared to pay to speculators to offload price risk.

term structure

termstructure
 the volatility index (VIX) term structure illustrates, by maturity, expectations of market volatility of the S&P 500. We plot the values for three months in order to make the shift of expectations visible. 
 two areas are important for our analysis: short-term which is more dynamic and influenced by shorter changes of expectations and mid-term and long-term which is less volatile.


 past performance

 past performance may not be indicative of future results. therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly on this website, or indirectly via link to any unaffiliated third-party website, will be profitable or equal to corresponding indicated performance levels.

“Simplicity is the ultimate sophistication.”
Leonardo Da Vinci