Both the momentum and SPY/TLT trades are now closed for good. We’re left just with protector alpha and the modified iron condors.
I closed the SPY/TLT pair trade for -14.4% for February and +10% for March. Those aren’t terrible results for the amount of volatility present in TLT and SPY during those months. Not to mention that SPY/TLT both fell for a while there in late Feb/early March. As well, TLT was up 11% in January and fell the same in February, that’s a lot of volatility for treasuries. It’ll be the last official pair trade for a while.
The momentum portion is also now closed at 0.25% profit. I don’t leverage this and its not attractive for me at this time. I like to use leverage with low-volatility strategies that have low max draw downs. Owning any equity unprotected is just too much risk for me 🙂
This months MIC is up 2.4% so far and I typically leverage it about 3x. The previous month I did 5.7%. I took off 14 1180/1200 debit spreads yesterday.
The protector Alpha is up about 1.4% for the year including the hedge. Spy is up about 1%. We’re outperforming the broad market AND we’re 100% hedged. Good result indeed. My expectation is that this will chug along and end up 10-15% for 2015. I leverage this at 7x usually so it’s up about 10% for me on the year.
On that note, what do I expect going forward?
I expect to do about 3.3% a month on the MIC and an average of about 10-15% a year on the Alpha protector. I leverage the MIC about 3x and I leverage the protector about 7x. So with leverage I expect about 10% a month on the MIC and about 7.5% a month on the protector. This is the return on the actual equity I have invested. My position and take on leverage is this: If I’d normally invest 250k in some strategy but I can do it with leverage and have only 50k tied up, then why would I tie up 250k? First, I determine my max draw down that I’d be comfortable with and then I put the least amount of money I need to work to achieve this level of risk/volatility.
As an example:
Let’s consider the protector. Let’s say I am comfortable with a 100k draw down and I figure that this is the MDD on 1MM of hedged equity. I first must accept that I will likely have a 100K draw down at some point in time and be comfortable with that. Next, because I have portfolio margin, I figure out how much cash I need to put up to achieve that goal and I put the least amount down as possible which, for this example, is roughly 150k at 7x leverage. Now I have 1MM worth of exposure at 150k and I am comfortable with the likelihood of a 100k draw down. It’s a concept that Scot bilington built into his optimum fund at Covenant capital. That’s a 66% draw down on original equity! That sounds crazy but it isn’t IF you’ve put down 7x less than you normally would have.
With the protector, I am comfortable with a max draw down and while I don’t suggest other people use this amount of leverage, it can be quite useful when handled with absolute care. I do it because I understand the draw downs and the risk and I can afford and stomach the swings. When you leverage the protector at 7x, you can expect 25%+ draw downs mark-to-market. With the MIC, if you set a 7% max loss, you’d have a 21% draw down.
As for the travels:
Tomorrow we hit London for a night, followed by Toronto for a night, then the final destination – Grand Cayman!
~P