Moderate Option Program

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Overview       

Strategy: Hedged Option Writing
Approximate Position Holding Period: 3-5 Weeks
Approximate Margin to Equity Ratio: 30%+
Accepts Notional Funding: Yes
Annual Management Fee: 2.5%
Annual Performance Fee: 25%
Annual Performance Objective: 25%
Minimum Investment: $100,000

Product Description

            Ascendant’s Aggressive Option Program utilizes a proprietary systematic approach and process with respect to the design, timing, selection and maintenance of positions, yet remains fully discretionary in terms of its actual implementation.  Ascendant’s investment objective, with this program, is to consistently generate considerable, above-average absolute returns, albeit with low and diversified levels of risk, irrespective of underlying market conditions. This moderately aggressive investment program seeks to obtain its return objectives by generating income by strategically designing and executing option spread positions on exchange traded futures contracts.

Strategy Description

            AAA’s Aggressive Option Program creates option spread positions on select classes of futures contracts, such as indices, financials, and commodities which are traded on domestic and foreign exchanges. After a careful review and analysis of a specific underlying market, forecasted price targets and/or price ranges are established to coincide with the approximate position holding period of three to five weeks.  The primary option spreads which will be structured and maintained dependant upon the analytical output as it pertains to each underlying market will be debit and credit vertical spreads.  Combinations of these spreads may be entered simultaneously which, in effect, take on other option spread characteristics, such as skip-strike butterfly spreads.  For example, with one month prior to options expiration and the S&P trading at 830, AAA may elect to structure and execute the following spread position: Purchase (1) front month 820 Put, sell (2) front month 800 Puts, purchase (1) front month 760 Put. This non-equidistant butterfly position will be implemented for a net credit and achieves its maximum profit when the underlying market settles at the value corresponding to the short put positions, 800 in this example.  The maximum loss is limited, and will be at values of 760 or below. Since the spread was initiated for a net credit, unlike a regular butterfly spread, at all prices above the lower break-even level, the spread will prove profitable.  This “broken-wing butterfly” spread can also be viewed as a combination of two vertical spreads.  In essence, it is long the 820/800 vertical put spread for a net debit while short the 800/760 vertical put spread for a net credit. When writing a credit spread, the grantor is credited the difference between the premium collected from writing the option, less the cost of the option purchased.  Unlike writing uncovered options, where the potential for unlimited loss exists, option credit spread risk is limited to the difference between the strike prices of the options written and purchased, less the initial credit received.  While the option credit spread clearly offers the advantage of limited risk, the writer reduces the profit potential in exchange for obtaining a ceiling on overall exposure.  AAA’s understands that this “trade-off” between risk and return is not only inherently necessary, but also helps ensure the long term success and viability of the Aggressive Option Program.

*AAA’s Moderate Option Program is identical in strategy to AAA’s Aggressive Option Program and differs only in performance objectives and the degree of financial leverage and/or position sizing relative to account size.

Please contact us for more information about our Moderate Option program.