Strategy

LJM creates and manages portfolios of short and long options on S&P 500 Index futures that may produce returns independent of market direction. We seek to profit, primarily, from the “volatility premium.”

The volatility premium is the difference between implied volatility (investors’ forecast of market volatility reflected in options pricing) and realized (actual) market volatility, and LJM aims to capture this premium by writing (selling) options. The fund’s investment managers will also buy options to help mitigate the impact of sudden price moves and potentially add incremental return. We believe the spread between implied and realized volatility will persist, providing sustainability of the strategies. 

There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.  

Implied and realized volatility levels 2003-2016*

At nearly all levels, implied volatility was higher than realized volatility the majority of the time.

Difference between implied and realized volatility 2003-2016*

The spread over time is clearly positive. The area contained by the line above zero exceeds the area contained below zero.