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Alternative Market Briefing

CTAs search out new trading ideas

Thursday, December 13, 2018

Bailey McCann, Opalesque New York:

After several rough years, CTAs are looking new ways of trading beyond trend following, according to delegates at the recent Opalesque Chicago Roundtable.

"We see a lot of volatility based programs now," said Jeff Malec, Managing Director at RCM Alternatives. "That can be outright VIX futures, VIX options, VIX spreads, so volatility is on its way to become a dedicated asset class. A lot of that is option selling, repackaging, but inside there can also be some advanced relative value VIX plays."

Malec adds that in addition to VIX focused programs, CTAs are looking at how to incorporate artificial intelligence. Some managers have also started to experiment with convexity protection of beta portfolios. "This is more a direct protection of the portfolio rather than trend following," he says. "People now also want to know exactly when a program is going to protect them, and the quicker it can protect a portfolio, the better."

Emil van Essen, CEO and CIO of CTA firm Emil van Essen says that the focus on using algorithms to follow a trend can be detrimental if commodities traders aren't willing to eventually step in or include some discretion from the outset. Commodities are more sensitive to outside forces that can end up changing a market structurally very very quickly.

"An example would be the commodity roll arbitrage trade which at some point structurally changed forever. Here, everybody was essentially front-running the......................

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