Not sure how you came up with 15% net return for investor. If we assume a 6% monthly return (quite hard to sustain), the net to investors would be 3.5% monthly, if the performance fee is 50% of anything over 1% monthly. (1+2.5%). That would be an annual total of 42%. Would you suggest 42% return with a max DD of 3.38% is not worth?? If we assume a 3% monthly return, the net to investor would still be 24% annually.
As stated several times before I will not go into detail what my strategy is, but I am getting your point on selling premium.
I thought you said you were approaching 50% YTD. I forgot about the 1% monthly hurdle, but a 60% fee still kills the returns. My program is at least top 20 in the nation for two years, and i still only charge 0/30. The thing is, no investor can reasonably assume that you max dd will never exceed 3.38%. The history isn't long enough yet. To answer your question, no. Industry guidelines suggest that high incentive fees result in exessive risk taking. Literally almost nobody would consider a fee that high.
Not requesting details. Just offering a word of caution. As much as we all try to protect the recipe of our secret sauce, you should realize that those familiar with many different asset classes and root trading strategies can tell a lot about a system simply by looking at the equity curve relative to market movement. Seriously, there are usually about three pieces of info needed to determine the core of a system. Trade frequency Equity curve Asset class
Generically, strategies involving options (or pretty much any other convex payoffs) are very hard to analyze using conventional performance metrics. If you want to convince yourself that your strategy is bullet-proof, you want to run some historical scenarios. Make sure to include as many crisis cycles as you could, at least include the 1998, 2001 and all of the recent pains. If you do not have enough history for this particular instrument, come up with some beta or some other relationship and generate some synthetic history. PS. while confidence is important, it's good to be paranoid about your strategies.
The concern of a 30% DD and an outlier market condition is something that should concern any trader no matter what you are trading especially if leverage is used in any way, in fact almost any asset class (stocks, bonds, metals etc) did have a DD exceeding 50% sometime in the last 30 years. While there are many ways to address that risk, I am keeping it simple for this strategy âa hard 10% stop lossâ in any given month. So letâs assume that I will have a 10% loss next month, my return for the year would be 35%, I wouldnât consider that bad. The chance of a 10% loss seems slim to me, but with markets you never know until after it happens.
There is securities involved, but could probably do something very similar with futures. Can you specify in more detail what would be the process for CTA, and for securities? We are probably talking of only a handful of accredited investors
Stop loss is only good if you are sure you can get filled. Otherwise, buy and hold with a stop loss would be a super-strategy too.
one needs to ask the question that how much you will lose if the market opens 10% gap down tomorrow morning at opening. the only way to offset a short convex position is to long something also with convex payoff. however that will eliminate the premium associated with time decay.