Editor’s Note
This was a difficult week and the weakest since the beginning of the strategy’s public track record. Several factors contributed to the result, and each provided useful information for the next stage of the algorithm’s development.
Monday brought a particularly strong market advance, an environment that is inherently more demanding for the current structure. The algorithm nevertheless performed relatively well. The strategy avoided a material loss apart from transaction costs and the recurring difference between the intraday account value visible in the trading terminal and the official post-clearing result.
The session also exposed an important limitation in the current version of the algorithm. In conditions such as these, the objective should not be limited to capital protection. A sufficiently strong directional move can also create a more productive opportunity set for the structure.
This is now one of the areas under active development. The next genuinely volatile session should provide an important test of the revised logic.
The principal loss of the week occurred on Tuesday. For the strategy, the market produced one of the least favourable combinations: rather than reversing sharply, which would have benefited the protection already in place, it continued to advance. At the same time, tail volatility continued to rise alongside the market, an unusual combination that produced an additional negative repricing effect.
The expiration and closure of previously purchased hedges added further losses. In addition, the difference between the official post-clearing result and the portfolio value visible in the trading terminal was particularly large that day. Together, these factors accounted for most of the week’s drawdown.
The remainder of the week was considerably calmer. Volatility, however, remained elevated and continued to rise across several parts of the surface. As a result, the strategy did not experience the rebound that has often followed volatile periods in the historical record.
The week is what it is. It was the weakest week since the beginning of the strategy’s public track record, and there is no reason to disguise or soften that fact.
At the same time, the week provided unusually valuable information. It showed not only where the strategy remains vulnerable, but also where the next areas of improvement may lie.
Those observations are already being incorporated into the algorithm, with particular emphasis on improving the way strong market moves are handled — not merely as events to withstand, but as market regimes in which volatility and directional movement may be used more efficiently within the strategy’s risk framework.
Editor’s Note reflects the author’s market perspective at the time of publication and should be read as commentary, not investment advice.