Applied Investments, LLC : AlphaVol

Summary

The overall investment objective of the Strategy is to produce uncorrelated, absolute returns on an annual basis, while simultaneously providing investors with some degree of protection against major market corrections.

Investment Strategy

The AlphaVol Strategy is a systematic absolute return strategy which opportunistically trades VIX and S&P 500 E-Mini Futures in an effort to take advantage of the discrepancies in current implied volatility versus expectations of subsequent implied or realized volatility. Depending on the market environment the strategy can pursue long, short or neutral views on volatility with a goal of providing our investors with superior risk-adjusted returns throughout various economic conditions.

Risk Management

The performance of all Applied Investments accounts is monitored on an ongoing realtime basis. Market risk, market volatility risk, correlation risk, basis risk, trading risk, futures tracking risk and gap risk are monitored. Market risk is measured by trailing realized volatility of market returns, by implied market volatility as measured by the VIX index and by forward looking measures such as VIX futures. Market volatility risk is measured by changes in the VIX index. Correlation risk is measured in the relationships between VIX futures contracts and the VIX spot Index and in the relationship between the S&P 500 Index return and the VIX spot and futures contracts. The Investment Committee looks for regions/conditions where the traditional correlation structures break down and recommends remedies. There are two types of basis risk being monitored. The first is the relationship between S&P futures and VIX futures. This basis risk is more akin to correlation risk and measured in the same fashion. The second basis risk measured is the level of the VIX futures basis relative to the VIX spot index as well as other VIX futures contracts. For more information, please refer to the DDQ.