PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS.
GSB primarily trades US Treasury Bond and Note futures markets. The program typically will sell options on US Treasury Bond or Note futures and sometimes will also hedge them with US Treasury Bond or Note futures. The trade decision process typically has 3 steps.
1.Since the markets are not entirely efficient, proprietary quantitative models will identify short-term market conditions based on historical data of price, volatility matrix, option chain and pattern matching techniques. The programs will typically sell puts at local bottom, sell calls at local top or sell strangles during range-bound markets. GSB may trade US Bond or Note futures and options for hedging or speculative purposes.
2.When trading options, the models will find out the best strikes to sell in order to get best risk/reward ratio.
3.The programs will look at current market bid ask price and compare with historical scenarios to generate an option trade signal.
Generally speaking, the majority of the options traded will expire worthless. However, option selling is not necessarily a winning strategy since the small amount of losing trades by selling options may cost more than the entire premium combined from expired options traded. GSB is not a pure volatility-selling program. It is directional prediction programs combined with a volatility measure. The programs will typically trade options with 1 week to expiration but may also from time to time trade options with longer time to expiration. The program may also buy back options before expiration in order to reduce risk or wait for better opportunities. GSB continuously monitors the risk/reward ratio on both potential and established positions.
Since GSB usually sell options, a drop in volatility after a position is established is usually more favorable to the program (given all other things unchanged). However, this does not mean the program will lose money when volatility is rising or the market is trending. In certain scenarios, the programs will benefit even more in a trending or volatile market when its direction prediction is correct. When market is more volatile, the programs may adjust with the market conditions and use less leverage ratio to reduce volatility risk.
There are three approaches GSB will use when market acts differently than expected.
1.The program may simply close out the positions and remain in cash. Most of the time, we find that simply admitting the models were incorrect and cutting losses quick is the optimal solution. This scenario typically happens when expirations are still quite away and the position hits a draw down limit specified by the program.
2.GSB may hedge the position with underlying futures. This typically will happen when the programs still believes the option will expire worthless or the program believes the options premium is too high and hedging is more profitable.
3.Third, the programs may roll over the position or hedge it with another futures option. This will depend on relative value of different options with different expiration or strikes prices.
Global Sigma Group, LLC currently mainly focuses on trading future & future options. The fund seeks to profit from short term directional and volatility skew opportunities in seperate equity index and bond futures and options. This strategy is model driven and typically long or short future for directional trade and short options to collect the premium. Proprietary system checks market opportunities constantly and searches best risk reward trades in future and future options.
Hanming Rao is GSG's investment manager. He has more than 15 years' experience in trading financial markets utilizing proprietary models that he has developed. Dr. Rao became listed as a principal and as an associated person of GSG on March 3, 2010.
Dr. Rao began trading stocks and options in July 1998 when he was a graduate student at Harvard University. After graduation, he began his professional financial career as a research quant at Ellington Management Group, a multi-billion dollar hedge fund in Old Greenwich, Connecticut in February 2005. In June 2006 Dr. Rao left Ellington to join SAC Capital Management, a multi-billion dollar hedge fund based in New York, NY as a global macro trader / analyst. He mainly focused on trading liquid assets including currency, interest rate swap, global equity index / ETF, commodity, commodity related ETF and options on all those markets. In May 2008, Dr. Rao took an asset management role at SAC's headquarter in Stamford, Connecticut. He was responsible for managing SAC's legacy assets in the following fixed income markets: Foreign Bonds, Junk Bonds, Convertible Bonds, Government CDS, Corporate CDS, Loan CDS, High Yield Bonds and the High Yield Index, etc. In January 2009, Dr. Rao left SAC to join Millennium Partners, a multi-billion dollar hedge fund as a vice president at their Greenwich, CT branch. His responsibility was to develop statistical models in the ETF and Futures markets. Dr. Rao left Millennium in June 2009. From June 2009 to November 2009 he was preparing for his own start up business. In December 2009, Dr. Rao founded GSG to provide investment management to outside clients.
Dr. Rao received his BS degree in Electronic Engineering from Tsinghua University, Beijing, China in July 1997, and his MS degree in Computer Sciences and PhD in Engineering Sciences from Harvard University, Cambridge, MA in June 1998 and March 2005, respectively. Dr. Rao's PhD thesis was Theory and Implementation of a Truly Random Number Generator. He designed an algorithm and built a hardware device to extract randomness from Po-210, a radioactive material that emits alpha particles. He also obtained a related invention patent. Dr. Rao ranked 17th in the China Olympiad Physics Competition in 1991. He won the "best experiment" award and 2nd place overall in the Guangdong Province Olympiad Physics Competition in 1991.