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CTA Spotlight: Ascendant Asset Advisors
November 12, 2007
We've talked in this newsletter before about how option selling CTAs were the hottest game in town, so to speak. Well, that hasn't changed a whole lot, despite volatility returning in 2007 and some popular option selling CTAs looking to post negative years. There are still option sellers out there who have been able to navigate their way through the volatility spikes, and one of our favorites is the newest recommended CTA at Attain.
This month's CTA spotlight is on Ascendant Asset Advisors, and their Strategic1 and Strategic2 programs.
Who is the Manager:
We usually don't see money managers with such posh zip codes, but the Ascendant Strategic 1 & 2 programs are run by Ascendant Asset Advisors out of Beverly Hills, CA.
Mr. Payam Pedram is the founder and Chief Investment Strategist of Ascendant Asset Advisors. He was first introduced to the financial industry as a computer service consultant for a number of regional brokerage firms in Beverly Hills, having been the president and founder of a computer services firm from 2001 through 2005. Payam is a Microsoft Certified System Engineer and a Cisco Certified Network Associate, and he believes that computer science background has proven invaluable in coming up with the various models, indicators, and programs used by Ascendant.
Mr. Pedram created a program that gives him a range of indicators which allow him to write options on multiple markets, being able to translate computer knowledge into what he believes to be a successful technical options writing program. He has also been able to use his experience and knowledge as a currency and bond trader to help diversify the programs. In his limited spare time Payam enjoys creating new software programs, collecting art, and racing cars.
Steven Paolillo co-manages Ascendant and joined as a principal in November 2005. Prior to joining Ascendant Steven was the Chief Compliance Officer of a regional brokerage firm in Beverly Hills, California. He got his start as a stockbroker in Beverly Hills in July of 1997 and he holds the following National Association of Securities Dealers' registrations: General Securities Principal, Registered Options Principal, Registered Representative, and Municipal Securities Principal. In his spare time he enjoys spending time with his family, golf, and is an ardent football fan.
How does the program work?
Ascendant Asset Advisors Strategic1 and Strategic2 programs are both option selling programs which look to collect premium from options sold. That is, they look to benefit from the time decay inherent in options, by having the option expire worthless. They will sell both covered and naked options, but in general are selling volatility and looking to generate income for accounts they manage.
Ascendant trades most actively in the electronic, e-mini stock index future option markets - including emini SP, emini Russell, and emini Nasdaq. And while the emini futures markets have been around for quite some time now, and are generally considered some of the most liquid markets you can trade, the emini option markets have only matched their futures counterparts in the past 3 years or so in terms of tradable volume and liquidity. Their models are constantly scanning for other opportunities, however, and we have seen trades in the bonds and currency markets also.
Utilizing electronic markets exclusively, Ascendant believes its strategic advantage is their live monitoring and management of each individually managed account's margin and risk. They have built a proprietary trading platform which brings in live data, position information, pricing, and margin information to assist their traders in utilizing an account's margin as efficiently as possible.
For example, if the platform finds that an account could sell two options at a further out strike price, for less margin, but equal premium collected, Ascendant may roll out of a current position to the less risky one, thereby freeing up more margin for future trade opportunities while costing the client nothing or actually making a little bit.
Both programs are traditionally short biased, meaning they sell more calls than puts in any given month. However, they will switch gears at times and become more of a put seller when they see an opportunity. In general, they are focused more on selling the Call side (synthetically short), because they believe that the upside is easier to mange in terms of risk than the downside. In the words of Mr. Pedram, 'we believe that we can manage the market when it crashes up... but it is close to impossible to manage it when the market crashes down'.
The two programs differ mainly in their aggressiveness, as defined by the use of available margin. Strategic2 is the more aggressive program, and uses more available margin than Strategic1. On average, the Strategic 1 program will use about 40% of the account value for margin, while the Strategic 2 will use around twice that, or 80%.
The selection of options, strike prices and expiration dates differs among the trading programs as well. Generally, each of the programs writes options on futures contracts that are "out of the money" and that Ascendant believes will expire worthless if held until maturity and, thus, generate income in the account. However, the more aggressive Strategic 2 program tends to write options with closer strike prices than the less aggressive Strategic 1, meaning not as far out of the money.
Ascendant differs a little from other option sellers in that they utilize both fundamental and technical analysis to identify trading opportunities in the bond, currency, and equities markets. So what they are doing one month may differ quite a bit from what you see the following month. This is in contrast to option sellers who only trade the put side, or sell iron condors on both sides of the market each month, etc. It is sort of like active versus passive management of short volatility.
Ascendant's fundamental analysis employs top-down analysis of the broad financial markets to identify which instruments offer the best investment opportunities in the context of the specific domestic and international financial and geopolitical conditions prevailing at the time. For example, they were not selling puts during the current credit crunch, liquidity crisis, etc. - for fear of a down move like we've seen over the past three weeks.
Additionally, Ascendant employs a series of proprietary models and technical indicators to identify the specific contracts, expiration months and strike prices that offer the most advantageous trading opportunities given their fundamental view.
Trade Example: $150,000 Account
July 26th: emini Russell 2000 futures price = 792.20
|Sell 7 September emini Russell 870 calls at 4.00, = $2,800 credit|
August 24th: emini Russell 2000 futures price = 801.50
|Buy 7 September 870 calls at 3.50, = $2,450 debit|
|Gain on Trade = $350 Credit - $10 commission*7 = $280.00|
$280.00 = +0.19% on $150K investment.
August 17th: emini S&P 500 futures price = 1457
|Sell 6 September emini S&P 1225 Puts at 7.00, = $2,100 credit|
August 30th: emini S&P 500 futures price = 1454
|Buy 6 September emini S&P 1225 Puts at 1.20, = $360 debit|
|Gain on Trade = $1,740 - $10 commission*6 = $1,680.00|
$1,680.00 = +1.12% on $150K investment.
There is a lot to like about Ascendant: Their impressive returns during 2007’s high volatility market conditions which have been trouble for other options sellers, their short call bias, their margin to risk management, and their diversification amongst different financial instruments. No other option selling CTA we track gives exposure to the Russell 2000, NASDAQ, and Dow (not to mention bonds and currencies). This range of markets has the ability spread out the portfolio's risk to different market sectors, although there is always the risk of all stock index sectors moving in tandem.
With some very big volatility in Ascendant's Strategic2 program, we wanted to watch this CTA for a while before considering our due diligence complete and adding it to our recommended list, and along those lines, we have been monitoring the Ascendant program in real time, following a live account, for about six months now.
Our first comments after that experience are that the Strategic2 program is only for the most risk hungry investors out there. We have seen the program take wild intraday swings approaching 50% DD levels, and only investors who can handle such volatility should even glance at Strategic2. The program trades quite close to the money at times, and you will have positions going into the money with Strategic2.
The Strategic1 program, on the other hand, has a more "normal" risk/reward profile befitting of most investors and is worth an extended look.
The biggest difference between Ascendant and other option sellers appears to be their role as traders, not just option sellers. Most option sellers simply put on a position, and let the time value erode as time expires. But Ascendant takes a more active approach, and can be seen exiting profitable positions to free up margin for new positions, adding to positions, taking profits, and more.
In general, they have a more discretionary feel to them, and can't be labeled merely as a short volatility option seller. And this can be seen in their track record, where they have actually posted positive returns when other option sellers struggled during volatility spikes this year. This willingness to play directional moves can result in some higher intraday volatility (especially in the Strategic2 program), but can also mean you may actually benefit from a spike in one direction.
For investors who actively track the CTA universe I think that you will agree that Ascendant’s performance thus far in 2007 is unique when compared to it peers. If you believe higher volatility is here to stay and traditional short volatility programs will suffer - add Ascendant to your watchlist or give us a call to see how it may fit with your portfolio.
IMPORTANT RISK DISCLOSURE
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Feature | Week In Review: Credit Crunch catches up with Stocks, while Gold/Crude soar | Chart of the Week
According to some analysts and economic advisors, the US economy is quickly heading towards recession due to the sub prime mortgage fiasco. It seems like a day doesn’t go by without a major bank reporting write downs in the hundreds of millions or even billions of dollars due to excess sub prime exposure. The scary part is that many are predicting the worst is still yet to come. Last week stocks felt the brunt of the sub prime weight again as SP futures -4.13%, NASDAQ futures -8.17% and Dow futures -4.36% all tumbled hard. The small caps were hit as well with Russell 2000 futures -3.41% and SP Midcap futures -3.14% both falling for the week.
The US Dollar continued to feel the heat as well with US Dollar Index futures falling -1.19%. Eurocurrency futures +1.16%, Swiss Franc futures+2.68% and Japanese Yen futures +3.32% continued to look very strong last week.
Energy prices continue to stay in the headlines with Crude Oil futures trading near $100 per barrel. Last week's gains were moderate however with Crude Oil futures climbing only +0.41%. Likewise RBOB Gasoline +0.68% and Heating Oil +1.75% where only up slightly as well. Natural Gas futures continue to be volatile losing -5.81%
Other commodities on the move last week include the Metals markets which saw Gold futures hit new contract highs after gaining +3.24%. Silver futures at +6.48% where also up big but High Grade Copper -5.40% and Platinum -2.51% both where down for the week. Grains where also down slightly as Soybeans -3.86%, Wheat -2.61%, and Corn -2.59% all moved lower due to a bearish supply outlook.
. ***Commodity Trading Advisors (CTAs)***
The first week of trading for November was anything but queit, as stocks had a big sell off, while energies and metals rallied to new highs.
There were not a lot of winners amongst CTAs for the week, as the volatility spikes hurt option sellers in both stock indices and commodities, but spread trading programs Chicago Capital and NDX were able to post small gains of less than 1% for the week.
Among the stock index option sellers, the above highlighted Ascendant Strategic 1 program had a great week with short calls in the Nasdaq (good for gains of about 2% for the week), while Zephyr came through ok, managing their positions with skill to end the week slightly ahead.
Most other programs (Zenith, Raithel, Crescent Bay) had short puts far enough away that the sell off last week did not hurt them too much, but BC Capital was an exception. BC had their exit rules triggered, and took losses on short puts last week, pulling their program further into DD. You have to respect them for following their rules, and after today's move lower, it definitely saved them some money.
Elsewhere, FCI had another down move last week, as energies, currencies, and silver all rallied higher. But when looking at the moves on Friday and again today, FCI has finally caught some relief - with the program having gained about 8% back from its lows.
***Day & Swing Trading***
It was a slow week for trading systems despite another large downturn in the stock market. Swing systems outperformed their day trading counterparts, specifically those that were short equity or long bonds.
PGA PowerGrowth2 was the top performer across all systems with profits of +$5,895. The program trades a portfolio of markets (ES/eRL/NQ), but saw the bulk of the gains come from short trades in the NQ. Tzar ES and Tzar ES Filter made +$3,170 after taking profits on the short trade and reversing long right near the lows on Friday. Signum eBL took profits on half of its current long trade and was up +$2,921.68 for the week. Signum TY maintained its long position for a gain of +$1,281.25 while Mesa Notes flipped from long to short and back to long for a gain of +$915.62 for the week.
On the losing side, SeasonalST eRL and ES lost -$1,024 and -$1,160 respectively. The Ultramini suite of systems also suffered losses of -$790 in the eMD, -$1,220 in the YM and -$1,297.50 in the ES. Tzar eRL reversed long a day too early and lost -$1,500 on the week after closing out a winning short trade. Finally, Tzar NQ lost -$3,635 after all of October’s gains in the ND were wiped out last week.
Day trading system profits weren’t as flashy but several programs were able to stay in the black. Rayo Plus Dax had four trades for profits of +$1,750.79. RT-Viper traded every day last week for gains of +$1,403. Kappa Dax has been a consistent performer and took profits of +$529.87 for the week. Waugh eRL had four trades for a gain of +$383.33.
Elsewhere, BetaCon 4/1 ESX lost -$689.09 on two trades from Friday. Compass SP had one short trade from Friday for a loss of -$1,675.
The strong uptrend in rate futures continued on last week as the majority of the sector posted 11+ month highs on continued worries of a slumping U.S. economy. Long term trend followers continue to have an upside bias as Aberration is currently long TYZ with a current gain of +$2703.13 (open trade).
The U.S. Dollar continued the trek lower versus most major foreign currencies, again scoring new historical lows in most cases. The rally in inflation sensitive instruments like energies, metals and soft commodities continued to be a major player in the dollar debacle. Long term trend followers continue to have a negative bias toward the U.S. Dollar as both Aberration and Relativity are currently short DXZ currently making +$3860.00 (open trade) and +$4270.00 (open trade) respectively. Relativity is also Long ADZ making $32100.00 (open trade).
Mixed activity was seen in the soft commodity sector last week as the corn and soybeans lead the grains/oilseeds higher with livestock sector again under pressure due to heavy production. Aberration is currently long BOZ trade with a gain of $3366.00 (open trade), and long corn losing $137.50 (open trade). Relativity is currently long SMZ making $2580.00 (open trade), short LCZ losing $160.00 (open trade), and Long Jan Robusta coffee making +$400.00 (open trade). Relativity also closed out the short LHZ for a gain of +$5100.00.
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.
Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques. Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this website.
Please read carefully the CFTC required disclaimer regarding hypothetical results below.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.