Souli is cautious when describing the mechanics, but was willing to shed more light on it for Risk.net when speaking off-the-record. “We managed to create this uncorrelated aspect of the strategy by using an innovative delta-hedging mechanism to minimise the gamma losses from buying high and selling low. By using this mechanism we managed to make sure if markets go down, the strategy is completely uncorrelated. As long as the market is range-y, you keep harvesting the risk premium,” says Souli.
In essence, the hedging ratio increases when spot moves closer to the strike, and falls when further away. The structure allows the maximum juice to be squeezed out of the trade in benign times, while ensuring decorrelation from equity markets in times of stress.
0 Comments