The strategy of The 1.2 Fund is to invest in short and long option strategies on the S&P 500 futures index, employing an active management to market exposure and risk. The fund mainly trades front month expiry and aims to hold a balanced exposure to upside and downside market movements. The fund further employs the use of futures and can buy outright puts and put and call spreads to act as insurance to minimise the potential draw down from extreme market movements to both the downside and upside.

The 1.2 Fund aims to achieve steady monthly returns based on a low volatility model; the choice of the monthly target is flexible and depends on market conditions and the level of volatility as indicated by the Vix. The flexibility of the strategy allows the managers to liquidate the portfolio and/or remain flat also during the expiry whenever the market conditions dictate it as the priority of the managers is always to minimise risk versus returns.

The strategy is dynamic and evolves throughout the expiry as market conditions change. The managers aim to minimise market exposure and seek to generate profit via market movements. The strategy implemented by the investment managers creates returns by exploiting volatility and by the natural time decay process exhibited by options every month. The portfolio is constantly monitored in real time and modelled under differing market conditions in order to determine if positions need to be adjusted.

After the big loss of February 2018, the strategy has evolved and include many intraday trades in both futures and options with extreme short time to expiry to highly exploit theta and eventually gamma of each option positions. The volatility of the fund has increased significantly, with a target return that aim to achieve a 3% to 5% monthly.

We aim to achieve return via a disciplined, staged process, combining top down macro analysis of the global economy with technical analysis and strict risk management designed to help protect the fund against any unexpected downside or upside risk.

Advantages of derivatives markets

Alternative investments such as futures and options on futures have important advantages over other more traditional investment vehicles. These alternative investments offer excellent global market exposure. Many futures and forward markets are highly liquid with some trading 24 hours a day around the world allowing the investment manager to take advantage of the ever changing market environment.

Most alternative investments such as futures and options on futures can be traded in both rising and falling markets. As there is no restriction against short sales in futures and forward markets, it is just as easy to establish a short position with the objective of profiting from declining prices as it is to establish a long position with the objective of profiting from rising prices. It is this potential to make money, regardless of market directions, that makes option strategies particularly attractive to sophisticated investors.