Blackheath Fund Management Inc. : Blackheath Volatility Arbitrage Fund, LP Class A

Summary

The Blackheath Volatility Arbitrage Fund, LP (the Fund) is an alpha generating fund with low correlation to equity markets. The Fund uses a proprietary trading methodology that trades volatility across a broad range of futures and futures options markets including the S&P 500, gold, natural gas, 30 year bond, crude oil, corn, soybeans and all major currencies. The Fund arbitrages the difference between implied and realized volatility. The Fund is dedicated to achieving absolute returns regardless of market trends.

The fund is only offered to Canadian Investors.

Investment Strategy

The investment process involves trading both futures and futures options to exploit the fact that implied volatility (a measure of what investors are willing to pay for options) consistently outstrips realized volatility (a determinant of the fair value of options). The investment strategy attempts to remain delta neutral and does not take a view on assets it sells or purchases. The Fund trades a diversified basket of futures and futures options. There are 20 different major contracts in which the Fund trades. The portfolio is dynamically hedged using real-time tick by tick risk monitoring driven by an in-house algorithmic risk management system. Our system monitors such variables as implied volatility and time to expiration and creates multiple stop levels for each open position. These levels are updated frequently according to the algorithm.

Risk Management

We have built a proprietary algorithmic risk management system. The system monitors all our positions in real-time. We monitor and adjust for following risks: Delta, Gamma, Tenor and Concentration Risk. The system automatically creates multiple stop levels in the underlying for each of our positions. These stop levels are updated daily.