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Alternative Market Briefing

Canadian systematic options strategy uses behavioral finance concepts as foundation

Friday, February 27, 2015

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Dr. Andrew Cumming
Benedicte Gravrand, Opalesque Geneva:

A Canadian physicist-turned-fund manager, who runs a systematic non-directional volatility arbitrage strategy which he developed over many years, explains his methodology.

Dr. Andrew Cumming was an MIT-trained physicist before deciding to move into equity derivatives trading. He started his financial career at Citibank where he ran the desk for a few years, and then worked for other major banks in Toronto over the next ten years. In 2000, it was time for independence. He left the corporate world and started trading for his own account and developing strategies around volatility. That effort culminated with the launch in 2009 of the Volatility Arbitrage Strategy, which he runs at Blackheath Fund Management, a Toronto-based CTA in which he is managing partner and portfolio manager.

"The strategy is actually fairly elemental," he told Greg de Spoelberch during a recent Opalesque TV interview. "The idea is that at-the-money options are expensive compared to their fair value. So what you do when a security (is) overpriced, you sell it, and that’s what we do. We sell options at-the-money. We don’t take a directional view on the underlined markets, so we are always selling puts and calls together with the same strike and we sell straddles."

As it is possible to lose ......................

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