-The strategy is an options trading system, which employs complex option strategies with the goal to generate a positive absolute return in any given market environment. The strategy was developed out of a proprietary trading program of CCPM (the strategy advisor), that was first implemented in 1995. Ever since then the strategy was subject to a constant process of research and development, which lead from a classical options writing strategy to a complex options strategy, that is based on a fixed set of possible strategies and follows a systematic trading approach. CCPM trades the strategy with the final set of rules that it involves today since August 2002. The strategy uses a combination of bought and sold options in the front month of the S&P 500 index. If the front month has only a maturity of 2-3 weeks to the expiry date of the front month, the program trades the next option month. In regular trading conditions, these strategies will be held until close to the expiry of the options contracts. Changes to the positions will only be made if either the risk management model or the position management rules would require such a change. Investment Process of the Athena Strategy The IOS strategy follows the following stages: -The strategy set -Market Analysis via the Athena Scoring model -Order Management -The risk management model -The position management rules The basis of the IOS strategy and its investment process is a set of 23 different complex options trading strategies, which are divided in 3 different groups. At the first stage of the investment process stands a calculation of the implied volatilities of the front month S&P 500 options. The absolute level of the implied volatilities defines which group of strategies can be considered for the current month. With volatility below 17 for example, only the strategies 1-9 can be considered. With 17-25 volatility, only the strategies 10-18 can be considered. If the volatilities stand above 25, the strategies 18-23 are eligible. They consist of less sold options, relative to the bought options. The IOS Scoring model is the research tool behind the Athena strategy. It defines which market direction the strategy will take with the options strategies. According to the Scoring model, the actual strategy for the current month will be taken out of the relevant group of strategies that has been defined by the volatility in the market. If the relevant strategy for the current month is detected, the order management of CCPM takes care, that the options portfolios can be built up at the best possible prices. As all of the 23 possible strategies involve spreads over different strike prices in the same expiry month, the strategy requires a qualified execution route, to enter the positions at attractive price levels. At the moment a strategy has been opened, the two constant surveillance routines of the strategy step in. The risk management model calculates the risk parameters for the strategy on a realtime basis and automatically controls the static risk management rules of the strategy. Any breach of predefined risk levels will lead to an automated shut of the strategy. The position management rules are also valid on a constant basis and indicate any change of the strategy that is required by these rules. These rules contain certain levels at which a gain within a current strategy has to be realised by closing a position. In addition to that, the position management contains a constant review of the Scoring model. Any shift in the Scoring model by more than 3 points will lead to a change of the current strategy because of the position management rules. The steps of the investment process in detail: Strategy Set The strategy set has been put together on the basis of a sophisticated research and development over several years. These strategies offer a good Risk/Reward ratio for the relevant combination of the volatility and the Scoring model that it is designed for. All of the strategies include a combination of bought and sold options so the strategy never takes a position within a single option. The most important distinction between the strategies is their market direction. The combination of bought towards sold options and the choice of calls and/or puts in a single strategy, define the underlying market direction of a strategy. Depending on the result of the scoring model bullish, bearish or also neutral positions can be taken. Scoring Model The Athena Scoring model is the research tool, which determines the market direction of the strategies employed. It can take a value between +10 (extremely bullish) and -10 (extremely bearish). A score of 0 would indicate a neutral stand, which would lead to the use of a strategy, that is symmetric on the Put and Call side. The Scoring model contains the following parameters and weightings: 30% Technical market condition short term (2-4 weeks) 10% Technical market condition mid term (3-6 months) 20% Market sentiment (US stock market letters, Sentiment Indicators) 10% Money In/Outflows US Mutual Funds 30% Valuation of the S&P 500 Shares (actual and estimated PE) The 30% weighting of the Technical market condition short term means, that this parameter can have a value between +3 (extremely bullish) and -3 (extremely bearish), that fills into the total score of the model. Accordingly the market sentiment can give a score between +2 and -2, as it has a 20% weighting in the total scoring model. The actual score of the model is monitored on a constant basis. Any shift of the Score by more than 3 points on a weekly basis will automatically lead to a shift in the actual strategy that is held. Order Management The strategies always contain combinations of bought and sold options within the front month of the S&P 500 options contracts. To be profitable with the strategies it is important, that these spreads are traded at attractive prices. Even more important for the success of the strategy is the ability to react to any market movement as quick as possible. The experiences of the past have shown that the best way to secure an optimal brokerage for the strategy can be achieved by a direct access to the trading floor. Risk Management Model The Risk Management Model of the Athena strategy contains a set of static and quantitative risk management rules, which are monitored on a realtime basis. The static risk management rules are mainly stop loss levels at which strategies will be automatically shut down. The most important of these rules is, that each written option will always be closed as soon as their strike price is reached. The order management always contains stop loss orders, to secure that the close of the positions at the stop loss level can be handled as efficient and quick as possible. The quantitative risk management rules include barriers on the level of Delta, Gamma and Value at Risk that the portfolio may take. These calculations are run on a realtime basis and whenever a predefined barrier level for any of the parameters is exceeded, the system gives a yellow light alarm to the trader of the strategy, which tells the trader to bring down the risk. If the trader would not take appropriate action, or the level of the risk parameters would exceed the red light barrier, the risk management model forces the order management to shut down the whole strategy immediately. Position management rules The most important part of the management of the open strategies is the constant monitoring of any relevant parameter that affects the success of the strategy. These parameters are covered by the Athena Scoring model and the risk management model. As described, any shift in the Scoring model by more than 3 points would lead to an adjustment of the actual strategy chosen from the strategy set. Also the rules of the risk management model influence the position management over time. The Scoring model and the risk management model set up a tool to prevent the strategy from incurring significant losses. As this is the most important task, these rules are incorporated in independent steps of the investments process. The position management rules set up by the Athena investment process contain rules for the exit of open strategies if they have already produced a profit. These rules take into account the relative prices of the bought and the sold options. The most common of these rules, as most of the profits are taken on behalf of this rule is that a strategy will always be shut if the written options will stand at less than half of the premium cashed in at the opening and the bought options have doubled in price at the same time.