ALLVEGA is a systematic trading program exploiting any kind of return distribution. It combines a long volatility strategy - which captures tail risk distribution with high probability - with a short volatility strategy - which captures normal market distribution with high probability. The aim is to offer constant positive returns and enhanced performance in tail risk environments. Instruments traded are liquid futures and options.
In normal market conditions (short volatility) writing options earn premiums but produce a negatively skewed return distribution. In extreme market conditions (long volatility) trend-following strategies capture tail events with high probability but may produce many small losses (positive skew). The worst scenario of one strategy is the best scenario of the other and vice versa. Thus, by combining both strategies and applying sophisticated asset allocation of the funds it is possible to achieve a very favourable return distribution irrespective of future market behaviour. In addition, the correlation to other investments is generally very low.
Risk Management and position sizing are crucial to the success of the strategy. The dimensions of controlling risks are 1. combining strategies which capture tail events and have positive carry; 2. diversifying into uncorrelated financial and commodity markets worldwide; 3. keeping maximum margin for both strategies below 35%; 4. daily position adjustment relative to option delta and trend strength of each individual market; 5. exiting positions at pre-determined stop loss levels. There is no guarantee that both strategies complement each other at all times