Short volatility strategies potentially profit in varied market conditions and levels of volatility. The goal of these strategies is to not depend on market direction and remain uncorrelated to equity markets.
The LJM Funds strategy goal is to profit in markets that are flat or slowly eroding. The strategy also aims to profit during orderly rallies. When volatility levels are steady or slowly increasing, LJM Funds believes short volatility strategies can profit, and they can generally produce strong positive returns when volatility is declining.
When portfolios are not properly hedged, small gap moves in the underlying market can be devastating to a portfolio. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.
As with any strategy, some market scenarios provide a greater ability to profit than others. While we believe that the LJM strategy can profit in varying market conditions, we prefer markets that are flat or slowly eroding, as a strong trend in either direction can be disadvantageous to our strategy.
Choosing a manager with extensive experience trading volatility strategies is imperative. Through 17 years of experience and the use of sophisticated risk management tools and models, LJM Funds portfolio managers aim to execute the most cost-effective hedging techniques in an attempt to produce appealing risk/reward profiles within the short volatility space.
Volatility strategies have the potential to generate consistent returns during periods when traditional portfolio instruments are losing value or flat. The nature of volatility strategies allows them to be non-directional and target low correlation to complement a portfolio composed of equities and fixed-income instruments.
LJM Funds manages a portfolio of options on the S&P 500 Index futures. LJM Funds seeks to profit in markets that are flat or moving up OR down in an orderly fashion.
LJM Funds pursues trades with counterparties who are seeking to hedge an equity portfolio or enhance yield within an equity portfolio. The counterparties are willing to pay a premium to LJM Funds for the trade. Due to this insurance utility, behavioral economics explains that individuals have traditionally and will continue to pay a premium.
Additionally, LJM Funds must reinvest a portion of the premium or revenue generated in order to hedge against extreme events. LJM Funds enters into specific risk-mitigation trades in an effort to mitigate losses during extreme events. LJM Funds has the ability to adjust the portfolio throughout the life of the option contract to take advantage of new opportunities or exit potentially unprofitable positions. Hence, volatility strategies are sustainable through active risk management and market liquidity. There is no guarantee that any investment strategy will acheive its objectives, generate profits, or avoid losses. For more information click here.
Volatility strategies such as the LJM strategy are alternative investment strategies and aim to complement equity investments or traditional directional managed futures investments. LJM Funds strategies seek capital appreciation and preservation with low correlation to the broader U.S. equity market. The inclusion of the LJM strategy in a portfolio is intended to target a lower standard deviation of returns while simultaneously incrementing overall returns.
Our strategy is available on most of the major trading platforms. You can also invest directly through our administrator, Gemini Funds Services, LLC.
Yes, we eat our own cooking.
At LJM a fundamental principle of our business is to invest alongside our clients. We believe this helps us align client interest with our own. To find out more about other important tenets of our company culture, click here.
Volatility: A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index.
S&P Index: An unmanaged composite of 500 large-capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses, or sales charges.
Short: The sale of a borrowed security, commodity, or currency with the expectation that the asset will fall in value. Transactions in short sales involve the risk of unlimited loss if the asset rises above the price at which the asset sold short.
Options: A financial derivative that represents a contract sold by one party to another party. The contract offers the buyer the right, but not the obligation, to buy or sell a security or financial asset at an agreed-upon price during a certain period of time. A buyer of an option risks losing the premium paid for the option unless it becomes profitable to exercise or offset the option before it expires. The selling of an option involves the risk of unlimited loss. An option seller collects a premium and risks losing the difference between the premium received and the price the seller would have to pay to obtain the underlying commodity or futures contract if the buyer exercises its option.
Standard Deviation: A statistical measure of the historical volatility of a mutual fund or portfolio, usually computed using 36 monthly returns. A measure of the extent to which numbers are spread around their average. The greater the standard deviation, the greater the fund's volatility.
The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.