Alpha Generation and Long Volatility
Strategies in Inflationary Regimes
Wednesday, November 30, 2022, 12:00 Noon ET
Cem Karsan
Nishank Modi
Matt Moran
Founder and Senior
Managing Partner
Senior Director – Cboe
Labs
Head of Index Insights
KAI Volatility
Advisors
Cboe Global Markets
Cboe
Options Institute
Webinar #45 in the Cboe Options Insights Webinar Series
www.cboe.com/insights/webinars
Please read the important disclosures on pages 2 through 5. © 2022 Cboe Exchange, Inc. All Rights Reserved.
1
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2
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▪
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3
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4
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Taxes
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6
Topics for Today’s Webinar
❖
❖
❖
Active Options Strategies that Seek Alpha
Generation and Provide Convex Protection as
Volatility and Skew Have Explosive Upside Moves
Offering Diversification Potential and Negative
Beta with Options Strategies
Exploring Hedging Strategies with Cboe’s PPUTSM,
PPUT3MSM, VXTHSM, and CLLSM Indices
7
S&P 500 Options Volume and Inflation in Recent Months
Growth in
Volume for S&P
500 Options
Since March
2021 (when U.S.
CPI was at 2.7%)
Growth in
Volume in 2022
for S&P 500
Options
with ShortDated
Expirations
8
Key Options Greeks
Risk Variables
Market risk variables are measured through option Greeks
Delta (Δ)
Gamma (Γ)
Theta (Θ)
Vega (v)
Rho (ρ)
• The change in the price of an option for a $1 change in the price of the underlier
• The change in delta for a $1 change in the price of the underlier
• The change in the price of an option given a one day decrease in time to
expiration
• The change in the option price for a 1-point change in volatility
• The change in the price of an option given a 1 percentage point change in the
risk-free rate
Vanna
• Measures the sensitivity of the option delta with respect to change in volatility
Charm
• Measures the instantaneous rate of change of delta over the passage of time
9
Key Options Greeks
Spot Price
Volatility
Time to
Expiration
First
Order
(Value)
Delta Δ
Vega V
Theta Θ
Second
Order
(Delta)
Gamma Γ
Vanna
Charm
Interest Rates
Rho ρ
10
Thetas for S&P 500 Puts on Oct. 23, 2021
Theta –
•
•
•
Measures the sensitivity of an option’s value to the passage of time,
Usually is expressed as the change in value per one day’s passage of time
Usually is negative for both calls and puts
There is
more time
decay for
the options
with nearterm
expirations
11
Deltas for S&P 500 Puts on Oct. 23, 2021
Delta • Measures the rate of change of the theoretical option value
with respect to changes in the underlying asset's price
• Is positive for both calls and puts
Source: Cboe Global Markets
12
Gammas for S&P 500 Puts on Oct. 23, 2021
Gammas measure the rate of change in an option’s delta with respect to
movement in the price of the underlying contract, and generally are:
• Positive long calls and long puts
• Higher for short-dated at-the-money options
13
Four of Cboe’s Options-Buying Benchmark Indices
Ticker
Index Description
CLL
CLLSM - Cboe S&P 500 95-110 Collar Index - tracks the performance of a strategy that purchases stocks
in the S&P 500 Index, and each month sells SPX call options at 110% of the index value, and each
quarter purchases SPX put options at 95% of the index value
PPUT
PPUTSM - Cboe S&P 500 5% Put Protection Index - tracks the performance of a hypothetical strategy
that holds a long position indexed to the S&P 500 Index, and buys a monthly 5% out-of-the-money
(OTM) S&P 500 Index (SPX) put option as a hedge
PPUT3M
PPUT3MSM - The Cboe S&P 500 Tail Risk Index (PPUT3M) is a benchmark index designed to track the
performance of a hypothetical risk-management strategy that consists of (a) holding the S&P 500
portfolio and collecting dividends and (b) buying 10% out-of-the-money SPX puts that expire on the
quarterly cycle, i.e. March, June, September and December
VXTH
VXTHSM - Cboe VIX Tail Hedge Index tracks the performance of a hypothetical portfolio that – (1) Buys
and holds the performance of the S&P 500® index (the total return index, with dividends reinvested),
and (2) Buys one-month 30-delta call options on the Cboe Volatility Index® (VIX Index)®. VIX calls are
purchased monthly, a procedure known as the "roll." The weight of the VIX calls in the portfolio varies
at each roll and depends on the forward value of the VIX Index, an indicator for the perceived
probability of a "swan event"
14
Four of Cboe’s Options-Buying Indices
Annual Returns for 7 Indices (2008 - Oct. 2022)
2014
2015
2016
2017
2018
2019
2020
2021
JanOct'22
15.8%
11.4%
11.2%
9.2%
-5.5%
-3.2%
-5.1%
-4.0%
1.0%
7.6%
8.3%
4.1%
21.8%
19.3%
18.6%
16.7%
-8.4%
0.1%
-4.1%
2.9%
18.7%
27.4%
25.3%
25.2%
113.8%
23.9%
29.1%
18.0%
13.8%
21.3%
18.3%
17.7%
-24.6%
-15.6%
-18.2%
-13.6%
-37.0% 26.5% 15.1% 2.5% 15.5% 32.4% 13.7% 1.4%
-53.3% 78.5% 18.9% -18.4% 18.2% -2.6% -2.2% -14.9%
-46.5% 13.5% 9.0% -1.2% 0.1% -1.2% -33.1% -32.9%
12.0%
11.2%
11.4%
21.8%
37.3%
5.8%
-5.2%
-14.8%
-13.7%
31.5%
18.4%
17.6%
18.4%
18.3%
-23.7%
28.7%
-2.5%
40.4%
-17.7% S&P 500 Index
-29.4% MSCI Emerging Markets Index (USD)
30.0% S&P GSCI
2008
81.8%
-25.6%
-20.1%
-23.6%
2009
2010
2011
2012
2013
-43.6% -12.5% 28.5% -30.3% -21.1%
14.4% 7.8% -5.9% 9.9% 28.0%
8.7% 11.7% -1.4% 10.0% 27.1%
17.6% 4.1% -8.8% 6.8% 23.8%
VXTH - Cboe VIX Tail Hedge Index
PPUT3M - Cboe S&P 500 Tail Risk Index
PPUT - Cboe S&P 500 5% Put Protection Index
CLL - Cboe S&P 500 95-110 Collar Index
Past performance is not predictive of future returns. Total return (pre-tax) indices. Source: Cboe Global Markets.
The Cboe VIX Tail Hedge Index (VXTH) (which buys VIX® Index calls) rose by more than 80% in 2008 and 2020
15
Less Severe Downside Deviation
Certain strategies that buy SPX puts or buy VIX calls may have the
potential to help lower the downside deviation of some portfolios
16
Diversification Potential
Strategies with
lower betas to the
S&P 500 may have
potential to help
diversify stock
portfolios
17
Returns and Risk-Adjusted Returns
18
Alpha Generation & Long Vol
Strategies In Inflationary Regimes
The Long-term
Outlook for Equities In An Inflationary
Regime Is Poor
Long-term Outlook for Equities in an Inflationary Regime is Poor
The 40 Year Trend In Liquidity
Interest rates declined secularly for 40+ years and then hit the lower
bound. This trend was a major tailwind for equities.
Its reversal is a secular headwind for equities…
21
Long-term Outlook for Equities in an Inflationary Regime is Poor
Various Metrics Point to Historical Market Overvaluation
The excess liquidity from historic central bank activism created a liquidity
bubble with record equity valuations
22
Long-term Outlook for Equities in an Inflationary Regime is Poor
Disappointing Equity Returns Ahead
S&P 500 CAPE Ratio Pointing To Underperforming Returns over next 10 years
➢ Historically when the CAPE ratio has
climbed above 22, S&P 500 returns
over the ensuing decade were
significantly below average
(transparent red boxes in graph)
➢ The current CAPE value is
approximately 38.36, > 3 standard
deviations above the mean...
“Median real returns were negative
over the subsequent decade when
CAPE values exceed 30”
Source: US Treasury Office of Financial Research (OFR)
Quicksilver Markets, by Ted Berg
June 2021
38.36
?
?
Source: Robert Shiller data (http://www.econ.yale.edu/~shiller/data.htm
?
?
23
What Does This
Mean For Equity Volatility In
An Inflationary Regime?
The Outlook For Passive Equity Exposure Is Poor
A Tale of 2 Markets…
25
The Outlook For Passive Equity Exposure Is Poor
SPX Realized Volatility: Inflationary vs. Non-Inflationary Period
How Is Realized Volatility Different During Inflation?
• Short-term Realized Volatility Somewhat Higher In
Inflationary Periods
• Long-term Realized Volatility Is Dramatically
Lower In Inflationary Periods
• Upside Realized Volatility Compression Is The
Primary Driver of Long-term Volatility
Compression
26
The Outlook For Passive Equity Exposure Is Poor
SPX Realized Volatility: Inflationary vs. Non-Inflationary Period
Inflationary (1971-1986)
Non-Inflationary (1990-2019)
27
The Outlook For Passive Equity Exposure Is Poor
SPX Realized Volatility: Inflationary vs. Non-Inflationary Period
Difference: Inflationary (1971-1986) vs Non-Inflationary (1990-2019)
28
The Outlook For Passive Equity Exposure Is Poor
SPX Realized Volatility: Inflationary vs. Non-Inflationary Period
Why Is Realized Volatility Different During Inflation?
THERE’S A CRITICAL PUSH AND PULL BETWEEN “FIRST
ORDER” & “SECOND ORDER” EFFECTS OF INFLATION
• “FIRST ORDER” EFFECTS CREATE VALUATION IMPROVEMENTS
OF ASSETS IN NOMINAL TERMS
• BUT “SECOND ORDER” EFFECTS TEND TO BE MORE
IMPORTANT… DIRECTLY REDUCING LONG-TERM EQUITY
DEMAND (DIMINISHING UPSIDE BIAS)
1.
2.
3.
4.
5.
CONTRACTIONARY FED POLICY DRIVES LESS DEMAND FOR ASSETS
REVERSE TINA EFFECT DRIVES LESS DEMAND FOR EQUITIES (MORE COMPETITIVE BOND YIELDS)
MARGIN COMPRESSION EFFECTS OF HIGHER RATES
HIGHER DISCOUNT RATE REDUCES VALUE OF FUTURE EARNINGS
HIGHER RISK PREMIA DUE TO LESS LIQUIDITY… AND THEREFORE REMOVAL OF UPSIDE RV OVER
LONGER TIME FRAMES
29
The Outlook For Passive Equity Exposure Is Poor
The Return Of Active Long Volatility Management?
Historically, when interest rates rally off their floor, expect multiple contraction and potentially
a lost decade for equities, as we saw 1968-1982. Periods such as this represent an immense
opportunity for active hedging and portfolio management
61.4%
62.3%
-23.8%
69.1%
-19.0%
-32.9%
-42.6%
S&P 500 1968 - 1982
S&P 500 1968 - 1982 Inflation Adj
Source: MacroTrends
Although the S&P 500 was essentially flat over this 14 year period, there were 4
secular declines of greater than 19% and 3 secular rallies of greater than 60%, creating
an ideal environment for active hedging and portfolio management.
30
Poor Hedging Alternatives
Amidst a Liquidity Bubble
Poor Hedging Alternatives
Traditional Hedging Alternatives Are Historically Overvalued
Bonds
● Yields near all time lows
● Bond sensitivity to interest rate, given
current price sensitivity, is extremely high:
A bond ETF like TLT is likely to lose over
90% of its value in a move back to the
historical average of 6.5% in the 30 year
Treasury Bond.*
Gold
● Prices near historic highs
● Historically gold is an inconsistent hedge
in stock market downturns: During many
recessionary periods in the last 100 years
gold has actually fallen in value
* Based on current TLT price sensitivity of 18.42, inferring a 18.42% loss for every 1% change in interest rates as of April 5th, 2021
32
Poor Hedging Alternatives
Long Volatility Alternatives Also Have Poor Long-term Returns & Require Alpha
Naïve Put Strategy
➢ An investment of $1000 in a naïve put strategy
in 2009 had lost approximately 95% of its
value*
➢ A naïve put strategy had a backtested annualized
return of -28% since 1992.*
VIX/Long Vol
➢ An investment in the VXX exchange traded
note has lost 99.99% of its value over the 10
year period since its inception, due to the high
cost of trading in VIX futures contracts
➢ VXX has an annualized return of -55% since
inception
* As of December 2019
33
Two Unique Opportunities
To Drive Alpha To Fund
Long Volatility Strategies
1. The Volatility Arbitrage
Opportunity
The Volatility Arbitrage Opportunity
Stock Option Volumes Have Exploded
36
The Volatility Arbitrage Opportunity
The Volatility Arbitrage Opportunity
The Opportunity:
○ Anyone who has a job, owns a home or participates in the
economy is long the market, whether they realize it or not.
This simple fact, drives arguably the single largest supplydemand imbalance in the world.
○ Volatility Risk Premium (VRP) as well as equity market
implied volatility skew are just a few examples of well
documented structural mispricings driven by the largest
“insurance market” in the world. As many seasoned
investors can attest (ie. Buffett), insurance is one of the
most consistent sources of yield available.
○ With the dramatic increase in options volume, relative
value dislocations have increased.
○ Unlike most opportunities in a liquidity bubble, these
opportunities are actually increasing.
37
The Volatility Arbitrage Opportunity
The Opportunity: Implied Volatility Overvalued
“A simulated trading strategy that sells options … generates significant paper profits for the index.”
Source: Does Net Buying Pressure Affect the Shape of Implied Volatility Functions, by Whaley, et al
Implied Volatility Has Consistently Exceeded Realized Volatility
○
Over 28 years (1990-2018), the market has overpriced volatility by an average of 4.2 vol points
■
Implied volatility has exceeded realized volatility in all but one year since 1990 (97%)
Source: Historical Performance of Put-Writing Strategies, by Oleg Bondarekno, Ph.D.
○
Overvaluation of implied volatility is a structural phenomenon broadly attributed to investor
demand for insurance in the form of options
■
Data “does NOT provide evidence that the options market is becoming more rational over time.”
Source: Mispricing of S&P 500 Index Options, by Constantinides, et al
Average of Implied Vol
Risk Premium
38
The Volatility Arbitrage Opportunity
The Opportunity: Implied Skew Even More Overvalued
Implied Volatility Skew Is Even More Overvalued Than At-The-Money Implied Vol
➢ Implied skew relative to realized data has been historically overestimated by 200% to 300%
“For a variety of option classes, but particularly short-term out-of-the-money puts, the magnitude of mispricing
remains large.” Source: A Nonlinear Factor Analysis of S&P 500 Index Option Returns, by Chris Jones
Inherent Supply/Demand
Imbalance
• Market long $25 trillion of S&P500
equity and $80 trillion of global equity
• Liquidity of S&P500 options
(“insurance” market) is a mere fraction
of that (billions).
Demand For Insurance
Is Increasing
• Availability and publicity of options
trading as a hedge to market
exposure increasing significantly in
the last decade
VIX
• Advent of products like the VIX have
drawn in more volume and naive
demand from less experienced hedgers
• VIX is 1-month based, which drives
even more demand for short-dated vol
and skew
Structural Mispricing
Of Short-Dated Skew
39
THe Volatility Arbitrage Opportunity
Portfolio Diversification
Vol Arb Strategies tends to generate alpha that have low correlation to S&P 500 & Alternative
Investments
➢
➢
KAI’s VOL Neutral AlphaGen strategy has backtested returns with a low .2 Beta to the S&P 500 over 29 years.
While also carrying even lower correlation to other conventional hedge fund strategies:
Backtested Correlations to Industry Benchmarks
Equity Market Neutral
-0.14
Hedge Fund Index
0.12
Fixed Income Arbitrage
-0.14
Long/Short Equity
0.24
Multi-Strategy
-0.02
➢ Backtest analysis shows investment in Volatility Arbitrage Strategies can significantly
diversifies away from traditional market risks, providing truly non-correlated positive alpha.
Commodity trading involves substantial risk of loss. Past performance is no guarantee of future results. Future results may differ significantly from past
performance. There is the possibility of loss and all investment involves risk including the loss of principal. Please refer to the disclaimers at the end of this presentation
when reviewing the performance herein.
40
2. The Predictive Power of
Dealer Positioning:
The Market Timing Opportunity
The Market Timing Opportunity
Secular Increase in Options Volumes
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The Market Timing Opportunity
Network Effects: Ease of Market Access
43
The Market Timing Opportunity
Network Effects: More Products, Flexibility Meets Demand
History:
● On March 26, 2004, the VIX Index is calculated and disseminated in
real-time by the Cboe & trading in futures on the VIX began
● On February 2006, it became possible to trade options on the VIX.
● In October 2011 UVXY the largest Volatility ETF, which holds mixtures
of VIX futures that attempt to enable stock-like trading in those
futures was launched
This Year Alone:
● On March 14, 2022 Cboe launches Nanos Options
● On April 25, 2022 Cboe & CME will be launching SPX & Emini
expirations for every day
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The Market Timing Opportunity
Network Effects: Increased Awareness & Education
Google Trends search for “trading options”
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The Market Timing Opportunity
What Makes Options A Superior Product w/ Secular Growth?
➔ Options are not an asset class, they represent the full distribution of probabilities
of any & all underlying outcomes in time and moneyness
★ Traditional assets simply are the “Expected Value” or Summary of this rich underlying
distribution. In effect, an asset’s option chain is the Real Underlying & are in the process of
moving to this status
★ Superior infrastructure, Access. Liquidity. Education. Are accelerating to a “Tipping Point”
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The KAI Dealer Flow AlphaGen Strategy Explained
What is Dealer Positioning?
People like to refer to options as market ‘insurance,’ but the problem with this
analogy is that it fails to contemplate the crucial fact that market ‘insurance’ itself is
reflexively involved in the probabilities of its own outcomes.
Buying puts in an asset isn’t like tornado, life, or fire insurance, where the
outcome is completely independent of the security, because when these
contracts are bought or sold, their positioning ultimately drives flows in the
underlying assets they represent. The reality is that when people are all hedged (or
“insured” in this example), market events tend not to realize. Conversely, when
market participants are not hedged, market events do tend to realize.
This critical understanding is the basis for Kai’s Dealer Flow Strategy’s predictive
modeling. Measuring and systematically tracking the positioning of dealers across
options as well as other products allows the strategy to proactively get ahead of
supply and demand flows that this positioning generates.
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How Can You Use
Dealer Positioning To Drive Alpha?
Using Dealer Positioning to Drive Alpha
Option Dealer Positioning & It’s Effects On Equities
Options represent the full distribution of probabilities of any & all
underlying outcomes in time and moneyness. Traditional assets simply
are the “Expected Value” or “Summary” of this underlying distribution.
Q: How do changes in the distributions get translated to the summary
value of their assets?
A: ”Options Dealers” (MMakers, Banks, etc.) who warehouse options risk
model these changes in the distributions and use quantitative models to
equalize risk across the distribution.
This is the underlying basis of Volatility Arbitrage. Dealers’ hedging of these
changes in the distribution are the supply and demand that ultimately drives
changes in assets. This is a major driver of Market Reflexivity and how specific
information on the option chain gets translated into equity values.
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Using Dealer Positioning to Drive Alpha
Dealer Positioning Effects Aren’t New, But Are Accelerating
Market Adages
❖
❖
❖
❖
❖
❖
Markets climb a wall of worry
Markets take the stairs up and the elevator up
Never short a dull market
Sell the rumor, buy the news
Never catch a falling knife
Dead cat bounce
A Primary Drivers of “Seasonal” Calendar Effects
❖ Santa Claus rally/January effect
50
Using Dealer Positioning to Drive Alpha
Option Dealer Positioning & It’s Effects On Equities
This “Dealer Hedging” can be broken up into 2 major Delta One Effects
1. Gamma Effects
1. Vanna/Charm Effects
51
Gamma Effects
Gamma Effects
Gamma Effects
Gamma Exposure: An option
dealer's delta sensitivity to
changes in the price of the
underlying.
53
Gamma Effects
Short Gamma Effects & The Covid Crash/Recovery
SPX Daily - March 1, 2020 through May 31, 2020
Feb OpEx
Mar
OpEx
54
Gamma Effects
Long Gamma Effects: 2017 Historic Vol Pinning
➔ In 2017 realized volatility in the S&P 500 index dipped to 30% below its all time historical low and
measured correlation across its constituent equities also declined to more than 20% below its lowest levels in over
200 years of market history. Clearly something was very different in markets. Why was realized index volatility so
low and why was correlation among the securities making up the index so low all of a sudden?
➔ Implied volatility in the indices became compressed due to a dramatic increase in customer supply. This forced
dealers into dramatically long volatility positioning. As shown in the below figure, this served to reflexively pin the
index.
Source: Newfound Research
➔ That said, dealer hedging only suppressed index level volatility. Underlying components still exhibited idiosyncratic
volatility, hence the only reconciliation was a historic 6-sigma decline in correlations, system-wide. In other words, if
the index level is pinned by dealer hedging and a single stock price idiosyncratically must move, then it must be the
case that the price of other components have declined, in order for the index to remain pinned.
55
Vanna & Charm Effects
Vanna and Charm Effects
Vanna & Charm
Vanna Exposure: An option
dealer's delta sensitivity to
changes in options' implied
volatility
Charm Exposure: An option
dealer's delta sensitivity to
changes in time
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Vanna and Charm Effects
Vanna & Charm: The 2020 Trump Election
58
Vanna and Charm Effects
Vanna/ Charm Effects: The 2020 Trump Election
Q: On the day after the 2020 US presidential election the stock market ripped higher in the face of the worst possible outcome: no
clear winner on election night combined with a high likelihood of split power in congress. What caused markets to rally on this event as
well as many other similar such “worst case scenario’ events such as Brexit and the 2016 Trump election?
A: The answer lies in the
extraordinarily high level of implied volatility that had been priced into the event for months – culminating in
a VIX spike above 40 before the election and dealer’s reaction functions tied to it.
In the course of the market rout a lot of put options on the S&P 500 were bought to protect portfolios against a worst case scenario.
These expensive, mostly near-dated puts were sold by dealers who needed to hedge their exposure by selling S&P 500 futures and
buying longer dated cheaper puts – this action further pressured prices down and implied volatility up in a negative feedback loop.
On election day, regardless of the outcome, the event had passed, and with the positive cascade of changes in Vanna and Charm with
the removal of the event risk premium, the negative feedback loop began to unwind in the opposite direction. The VIX started to fall
and stock prices to rise as dealers were forced to unwind their high levels of hedging by buying back S&P 500 futures. The
backwardation of term structure only exacerbated these situations as dealers decayed longer cheaper vol as high short dated hedges
quickly decayed away.
Despite an outcome that on its face was less than desirable from a macro perspective, stocks soared higher as dealers scrambled to buy
back their short delta hedges.
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Vanna and Charm Effects
Vanna & Charm: The 2020 Trump Election
SPX Daily - October 1, 2020 through December 31, 2020
Election
Day
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Portfolio Diversification
A Dealer Flow focused market-timing strategy tends to generate alpha that has Low Correlation to S&P
500 & Alternative Investments
➢ The strategy’s historic returns have a low .18 Beta to the S&P 500 over the last 1.33 years.
➢ The strategy carries even lower correlation to other conventional hedge fund strategies:
Backtested Correlations to Industry Benchmarks
Equity Market Neutral
-0.17
Hedge Fund Index
0.00
Fixed Income Arbitrage
-0.29
Long/Short Equity
0.10
Multi-Strategy
-0.08
➢ Investment in Dealer Positioning Strategies can significantly diversifies away from traditional
market risks, providing truly non-correlated positive alpha as well.
Commodity trading involves substantial risk of loss. Past performance is no guarantee of future results. Future results may differ significantly from past
performance. There is the possibility of loss and all investment involves risk including the loss of principal. Please refer to the disclaimers at the end of this presentation
when reviewing the performance herein.
61
Contact Information
Kai Volatility Advisors
401 W Superior St
Suite 101
Chicago, IL 60654
www.kaivolatility.com
Cem Karsan
Senior Managing Partner
312-605-8020 office
cem.karsan@kaivolatility.com
62
Disclaimers/Certain Risk Factors
Performance Results Comparisons
Results are compared to the performance of the S&P 500 Index (“S&P500”) for informational purposes only. The investment program does not mirror this
index and the volatility may be materially different than the volatility of the S&P500.
Results are compared to the performance of the Chicago Board Options Exchange Market Volatility Index (“VIX”) for informational purposes only. The
investment program does not mirror this index and the volatility may be materially different than the volatility of the VIX.
Results are compared to the performance of the Dow Jones Credit Suisse Hedge Fund Index (“DJCS Hedge Fund Index”) for informational purposes only. All
correlations calculated herein are calculated against these indices. The investment program does not mirror this index and the volatility may be materially
different than the volatility of the DJCS Hedge Fund Index. The earliest any displayed DJCS data begins is Dec 1993 and the earliest CBOE VARB-XTM data
begins is July 2004 and ends in Nov 2013 , whereas all other benchmark data begins in Dec 1991.
Strategy and Investment Descriptions
The description herein of the approach of KAI Volatility Advisors and the targeted characteristics of its strategies and investments is based on current
expectations and should not be considered definitive or a guarantee that the approaches, strategies, and investment portfolio will, in fact, possess these
characteristics. In addition, the description herein of KAI Volatility Alpha Gen Fund’s risk management strategies is based on current expectations and should
not be considered definitive or a guarantee that such strategies will reduce all risk. These descriptions are based on information available as of the date of
preparation of this document, and the description may change over time. Past performance of these strategies is not necessarily indicative of future results.
There is the possibility of loss and all investment involves risk including the loss of principal.
Fund Terms and Conditions
The summary provided herein of KAI Volatility Advisors Fund’s terms and conditions does not purport to be complete. The Fund’s Memorandum should be
read in its entirety prior to an investment in the Fund.
Forward Looking Statements
Any projections, forecasts and estimates contained in this presentation are necessarily speculative in nature and are based upon certain assumptions. It can
be expected that some or all of such assumptions will not materialize or will vary significantly from actual results. Accordingly, these projections are only an
estimate. Actual results will differ and may vary substantially from the results shown.
General Disclaimer
An investment in any strategy, including any strategy described in this presentation, involves a high degree of risk. There is no guarantee that the investment
objective or targeted performance will be achieved. Moreover, past performance does not guarantee future returns and the potential for gains is
accompanied by the possibility of loss. The nature of and risks associated with the investments to be made in connection with KAI Volatility Advisors LLC (“KAI
Volatility Advisors” or “KAI Volatility”) may differ substantially from the nature of and risks associated with investments undertaken historically by KAI
Volatility’s principles and/or employees. Nothing set forth herein shall constitute an offer to sell any securities or constitute a solicitation of an offer to
purchase any securities. Any such offer to sell or solicitation to an offer to purchase shall be made only by formal offering documents. Each potential investor
should read the formal offering documents in their entirety and should carefully consider the risks, warnings and disclosures. The information contained in
this document is strictly confidential and supplied with the understanding that it will be held in confidence and not copied or disclosed to third parties without
prior consent of KAI Volatility Advisors LLC.
63
Discussion and Q&A
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TOPICS
Active Options Strategies that Seek Alpha Generation and Provide Convex Protection as Volatility and
Skew Have Explosive Upside Moves
Offering Diversification Potential and Negative Beta with Options Strategies
Exploring Hedging Strategies with Cboe’s PPUTSM, PPUT3MSM, VXTHSM, and CLLSM Indices
❖
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SPEAKERS
Cem Karsan and Nishank Modi
MORE INFORMATION
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Click on the Handouts icon on your screen
Cboe Risk Mgt. Conf. (RMC) – Oct. 17 – 20, 2023 in Austin, TX - https://go.cboe.com/global-rmc-2023
Webinar replays and upcoming webinars www.cboe.com/insights/webinars
Options Education - www.cboe.com/education
White Papers - www.cboe.com/education/research
Cboe Blogs – www.cboe.com/insights
Cboe Indices - www.cboe.com/index
THANK YOU to the speakers and attendees!
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