Q3 and YTD Update

Peak is up about 44% YTD gross. We ended 2021 at the exact same number. We still have 25 days and I expect it to probably hit 47-50% to end the year. The year did start off pretty challenging but by May and onwards, the management was stressless and relatively straight forward. We were and are relatively indifferent to the swings of the market, and there were many, especially October. It was a lot of fun to watch the CPI releases and the whacky 5% moves in each direction and not really care. It’s interesting to note that direction doesn’t really matter in terms of how the portfolios perform. It is because of the setup of the systems and how these things mature together over time. The older trades mature and hedge off newer trades and we have diversification within the trades themselves including the tail positive exposure.

Our main concern or risk is when we move from a period of low volatility to a sudden shift to high volatility. Once in the regime, the trades are matured and setup in a way where direction of the market is not so important. Of course, we have to manage things and adjust risk but most of the time we don’t even know what market direction we prefer 🙂 If it screams up, we get the benefit of the vol crush but end up pretty stunted in potential return if it keeps going up, it taps out with a modest return if you will, but it’s easy and its a good modest return. if it screams down, we enjoy the activation of our convexity. If it grinds up, we’re walking it up with adjustments and trade initiations and benefiting from the volatility decline. If it grinds down, we’re enjoying the movement into our higher premium sections of the risk profile. All in all, relatively indifferent. It’s how it was designed. I don’t want to be beholden to market direction and I don’t want correlation to the broader market, especially now.

We’re now going into the end of the 3rd year of the funds existence and we’ve managed to produce similar returns to our backtests. Our “out of sample” match our “in sample” and despite 2021 being a very bullish year and a completely different environment than 2022, the years returns nearly match exactly. 44% and as of today 44%.

As usual, the focus is always on the reduction of risk through diversification, it is the series of returns that is most important to us. It is the multiplicative result of a series of results that matters the most, not the single edge or expected value of any trade. If you have a strategy that does 30% a year arithmetically but has a 50% draw down in year 5, it’ll do worse than a low variance portfolio that does 10% a year with no major drawdown multiplicatively. Our research continues to be on adding a trade type that compliments our systematic approach and that helps reduce the variance within the time series.

3 thoughts on “Q3 and YTD Update”

  1. A real inspiration man. I’ve been reading all your content.

    Recently, I purchased the course from Ron. I’ve also joined the PMTT community. After reading for a while the strategies posted by members, I found out after some backtesting that the CC4 448 was the one to use.
    The issue I have with this is that is that being from Canada, the PM does not exist. So, i’m stuck with using the ES futures.

    So, 2 questions here. Do you think it’s possible to be consistent with the CC4 using ES ? And do you think i should open a US account and get my PM to solve this? That would require that i transfer at least 100k.

    Thanks for everything! From Canada

    1. Thanks! I trade the same strategies in ES. You have to separate orders into two parts often because strike selection can be more limited (like doing half with one strike and another half with another strike to get you to the ideal deltas). Other than that it’s the exact same, if you’re trading at volume, I’d suggest getting a seat in Chicago and going with a broker like Marex/EDF and using CQG to trade futures options. The commissions are like 1/4th the amount at IB.

      So yeah, same same. Find it kinda easier to trade futures in CQG but there’s no mobile apps..

      1. Oh to clarify, I don’t trade any of those trades (the CC ones). I only trade single expiration trades (except the LPs). It would take a year for me to investigate those and to incubate. But I also am not really a fan of term structure issues across expirations.

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