Clarity Capital Management : Clarity Capital Management

Summary

Clarity utilizes proprietary algorithms to both enter and exit multi-leg option trades. Trades are diversified across time, strikes, and markets. The managed futures trading strategy consists of selling “covered” options. A “covered” option is an option with a predefined maximum risk of loss. Specifically, the strategy consists of selling one option position while simultaneously buying another option position with a net credit inflow of premium. The strategy is executed both on the call side of the market through the sale of call credit spreads and on the put side of the market through the sale of put credit spreads. The investor profits when the market price of underlying futures contracts stays below sold call strike prices and above sold put strike prices. The investor incurs a loss when unexpected price movements breach or approach the strike prices of sold options. Clarity currently trades options on futures on the following stock indices: E-Mini S&P 500, E-Mini S&P 500 End-of-Month, and Russell 2000 Mini. Specific indices may be added or dropped primarily based on liquidity.

Investment Strategy

Each Clarity account is divided into 8-10 tranches. When a tranche is not being used in a trade, we look to set a new trade. Trades are divided so that about half (no more than 6) are applied to any option month. Within each month 2-3 trades are assigned to either regular E-Mini S&P series or E-Mini S&P End-of-Month series. Each day, we apply our parameters and rules and determine a trade for that day in 2 or 3 series. Which series we choose is determined by a combination of days to expiration and volatility. New trades are set with 40-70 days to expiration. If a “slot” in any of the option series we’re tracking is available, a trade is considered only if it also meets our internal rules for strike diversification.

Risk Management

Once set, each trade is monitored and a proprietary parameter of risk is calculated. At a pre-determined level where our model perceives that risk is no longer balanced with reward, the trade is exited at the market. Alternatively, when most of the premium can be realized, we will exit the trade to realize that premium.