The risk that a specific industry sector has a particular news event or sentiment that causes said sector to diverge in isolation from the market as a whole. An example of this would be earnings or debt fears in technology stocks causing a slump in value relative to the rest of the market. The investment manager mitigates this risk by ensuring that it never builds a substantial position in any given sector. Option Strategist’s modelling and real-time risk controls ensure that any given position in any single sector is less than a defined percenage of the portfolios.

The risk that a specific geographical sector has a particular news event or sentiment that causes said sector to diverge in isolation from the global market as a whole. The investment manager mitigates this risk by ensuring that it never builds a substantial position in any given geographical sector. Option Strategist’s real-time risk controls ensure that any given position in any single geographical sector is less than a defined percentage of the portfolios.

The risk that a given trade cannot be transacted at the price indicated by the model. This can happen during times of high volatility or because of the market’s inherent bid/offer spread. The investment manager mitigates this risk by assuming wide ‘slippage’ assumptions in the modelled trade, such that the trader is able to beat modelled costs on the vast majority of trades and can therefore absorb the cost of a fast or wide market without affecting modelled return.

The risk of human error by a trader, be it accidental or deliberate. Option Strategist has placed limits on the trading terminals to automatically prevent unusually large quantities being traded or erroneous orders being submitted. This will prevent a trader from accidentally buying too many shares or trading at an inadvisable price. Trading limits alone will not prevent a trader from buying the wrong equity or the wrong quantity or from selling when he should be buying. This risk is mitigated by staffing each desk with a minimum of two professionals to catch errors. All accounts are reconciled daily to ensure they are matched with the Prime Broker’s account of the day’s trades. The management continuously monitors real-time performance and positions throughout the trading day.

The Prime Broker and/or the exchanges may under certain circumstances increase the margin requirements on some products. The investment manager endeavours to hold 50% of its trading capital as a reserve to employ in such situations in order to minimize the impact on trading strategies. Restricting trading activity to highly liquid products mitigates the risk of reduced liquidity in instruments in which Option Strategist holds positions.

Option Strategist operates a policy of at least double redundancy on all critical systems. There is at least one alternative to each trading platform and telephone links to brokers. All data is backed up at server level and tapes are taken offsite. There is automatic hardware failover on all routers and communications equipment. Multiple independent software vendors are used, price dissemination systems are hosted on different circuits and un-interruptible power supplies are used on critical machines.
Traders have backup staff assigned to them so if their machine were to fail another member of staff would be able to execute any given order. Equipment spares are held on site for either fast hot or cold swap.

Option Strategist Asset Management trades European markets and thus generates its returns in €uro. The Fund is €uro denominated and therefore no currency risk exists at all for european investors.

The risk that the strategies that the investment manager has developed either decay slowly over time or catastrophically break down due to unforeseen circumstances. This risk is mitigated by constant re-assessment and comparison checking to ensure real world results match modelled predictions.

The Prime Broker also carries out real-time independent risk management of Option Strategist’s activities. Limits are placed on the trading terminals and all positions are monitored at all times. These limits versus available cash margin are based upon the Prime Broker’s Value At Risk margining models, which vary depending on the instrument and the strategy. The investment manager works closely with the Prime Broker at senior levels to establish agreed risk profiles for each strategy, which are strictly adhered to.