In February 2018, markets looked pretty dire for many option writers. The VIX had spiked 250% in less than a week and options sold a few days before were selling for many multiples of their original value. The biggest firm in the space, LJM Partners, went under and some of the best names faltered. Tianyou reduced risk as any good manager should but not in time to stave off a 25.46% drawdown, the worst in their history. Most of their customers stuck with the program and by the end of the year they were down just 4% and now are looking at a 12% year to date gain through September 2019. Along the way they weathered the October 2018 and December 2018 market drops with gains. Tighter risk control and the growth of option liquidity with expirations every Monday, Wednesday, and Friday has helped fuel this recovery.
Bill Zhan has been running Tianyou Asset Management since its inception in October 2012. Over time as markets have evolved he has done well to stay ahead of market changes outside of two critical months. Both events provided opportunity for learning and adaptation of the program. The first in 2013, taught him that a process to sell assigned futures contracts as quickly as possible could help limit exposure and help focus on the primary role of selling out of the money positions. The second in February 2018 showed that in quickly moving markets, simply cutting a loss more quickly and taking advantage of three weekly expirations in the S&P could make more sense than trying to hold a position whose risk had passed its boundary.
Programs in the managed futures space are judged by many metrics; Sharpe ratio, return, max drawdown, and more. One that is often overlooked is the ability to recover. In a world where many are looking for immediate returns and have little appetite for losses many investors simply move on when an otherwise good trader encounters a loss. Customers of Tianyou Asset Management largely took the other route and stayed invested. The future remains to be seen but few in the option space have stuck it out as long as Tianyou has and for their customers they are happy they have.
Disclaimer: While an investment in managed futures can help enhance returns and reduce risk, it can also do just the opposite and in fact result in further losses in a portfolio. In addition, studies conducted of managed futures as a whole may not be indicative of the performance of any individual CTA. The results of studies conducted in the past may not be indicative of current time periods.