Crescendo Capital Management : Neutron Decay (Prop)

Summary

The Neutron Decay Strategy is a strategy that is non-directional or market neutral and typically attempts to exploit the time decay feature of options. The strategy trades call and put options according to many criteria established by CCM. Options used may be of any particular expiration cycle. The strategy will mostly benefit from markets that are not experiencing large or persistent trends. Therefore it may benefit from a market moving sideways, up or down, as long as the move is not very sharp or persistent in one direction. At times, CCM may initiate long option strategies as well which could have other risk and reward profiles. CCM does not usually try to predict market direction, rather, it acknowledges that market movements are impossible to consistently and accurately forecast. However, large persistent trends do exist and when they occur, CCM has a risk management plan which will be implemented as necessary. The options or spreads are initiated at various levels regularly to take advantage of multiple expiration cycles. The program seeks to be diversified amongst multiple liquid markets. Current markets traded include the E-mini S & P 500, Euro Currency, Crude Oil, and Natural Gas, Gold and Silver. CCM may trade additional markets or cease trading in certain markets at its discretion. Several criteria are utilized in the evaluation of a trade, including, but not limited to; volume, open interest, implied volatility, historical volatility, correlation, probabilities, and statistics. Volatility is a particularly important factor when determining which markets to trade and position size. Since volatility is typically mean reverting, when volatility levels are very low, position sizes are generally smaller, and when volatility is normal or high, position sizes are normal. Option positions may be adjusted in various ways as deemed necessary by CCM. The trade exit or entry may be done entirely at once or in portions as deemed appropriate by CCM. The strategy is designed for a margin-to-equity averaging around 40%, although it may fluctuate due to market conditions, and may be higher or lower at any given point in time. Neutron Decay is primarily an option spread strategy. Futures will be used rarely, and if so, most likely in the form of hedging an option position. Due to the nature of trading, new accounts may not fully participate in the strategy until the beginning of a new option spread cycle. This may cause a variance in performance between existing and new accounts.

Investment Strategy

Diversified options writing & spread trading, volatility trading, market neutral, strict risk management

Risk Management

Stay within pre-defined risk & margin levels for each market traded. Dynamically adjust positions to stay relatively delta neutral, premium neutral, market neutral. Buy back cheap options when risk is deemed too high vs. reward potential.