Implementing OG's Portfolio Strategy: June 2020 Performance

Introduction

Looking to provide complete transparency about our portfolio strategy, we started to manage a brand new portfolio for one of our investment clients on June 18, 2020. By tracking this portfolio for our members, we have the following goals:

  1. Helping our premium members make smarter investment decisions.

  2. Beating the benchmark on an absolute and relative basis (Sharpe ratio) without day trading or over-adjusting positions. Blindly buying ETFs won't lead to the required results and traditional common sense is oftentimes misleading. In the portfolios, we're only dealing with covered, high-probability strategies which do require a lot of capital.

  3. Sharing terrific studies/statistics about why and when we take particular strategy decisions. A new monthly portfolio management webinar will help our members stay the course.

  4. Discussing the backtesting studies on our own positions along with the 5 complementary strategies that are available to us.

  5. Elucidating the mysteries behind options in conjunction with buy and hold investing.

  6. Growing our community by providing a summarized performance update on the blog page.

Many marketplaces fail to deliver a coherent and transparent service. Most investors only look at returns, while neglecting risk (tail risks and the amount of consistency in the returns achieved). Time to change that mentality!


Portfolio Statistics

As time goes by and the portfolio builds up more and more (driven by new deposits and organic growth), the reliability of the portfolio statistics is set to increase substantially. Our benchmark is the MSCI World Equities, which we already have handsomely beaten since the inception.

(Source: Interactive Brokers Statement)


Below, you can find the risk analysis statistics. Over the course of the past 10 sessions, the portfolio has generated 1.79% in alpha (outperformance). Also, on a risk-adjusted, the returns are even better with considerably less downside deviation.

(Source: Interactive Brokers Statement)

(Source: Own graphs based on IB data)


Option Strategy Statistics

The portfolio currently generates +0.06% in daily theta (positive time value), while having a net long delta of 0.30 to the underlyings and a 0.36 beta-weighted SPY delta. This means that the portfolio is expected to generate a positive return of 0.30% if the underlyings go up 1%; a positive return of 0.36% if the SPY goes up 1%. We are now implicitly short volatility (as measured per unit of vega) by 0.21% of the portfolio value. A 1% increase in implied volatility will thus cost us 0.21%.


Conclusion

In June, the portfolio produced 1.79% in alpha with less fluctuations (9.01% downside deviation). Our net long delta is at the lower end of the targeted range as we first seek to improve our chances of investment success. Later on, the net long delta can be tweaked by implementing different strategies and based on market circumstances. Given the high VIX levels, the hedging strategy isn't in place right now.


More information about the portfolio holdings, risk parameters and management techniques is exclusively shared with our premium members. The monthly portfolio management webinars will be scheduled for the first week of a new month (transmitted in both Dutch and English versions).

Option Generator AM

Company number: BE 0750.963.805

©2019-2020 by Option Generator - All rights reserved