Hedge Fund Secrets Anyone Can Use — Barclays’ Secret 300% Options Strategy
Disclaimer: I do not provide investment advice and I am not a qualified licensed investment advisor.
NO SPECIFIC TICKERS MENTIONED IN THIS ARTICLE
Abstract
VIX is a measure of what’s called implied volatility or IV. IV uses options prices to determine what buyers anticipate the real volatility to be. Real volatility is instead a mathematical formula used to represent an asset’s price movement relative to time. Lastly, sector volatility assesses volatility in the same way but generalized to the sector. By comparing these three we can develop a short options strategy that gives us superior returns. We find that usually, IV of a stock > RV of a stock > RV of it’s sector. When this is true we sell options because volatility is mean reverting.
What is the Hedge Fund Secrets Anyone Can Use series?
I spent an unreasonable amount of time trying to start a quant fund and failed twice.
Once again, I’m starting over and building a fund from the ground up with my team of experienced analysts and traders.
In this process, I’ve learned and developed many strategies fit for a hedge fund that I’d like to share. These strategies are simple and ones I believe the average investor or retail trader could use with minimal effort to boost their returns and their portfolios.
Every article I share a hedge fund level strategy that will help you drive your returns.
The Strategy
Search for stocks with a high IV using Barchart. Then look at the stocks volatility. Then, look at the sector’s volatility. If IV > RV > SV, sell strangles, straddles, and iron condors. Basically, sell options, aiming for expiries like a 2 weeks to a month.
High IV generally means high option prices. So when IV is overstated, option prices are overinflated.
Attached below is the paper Barclay’s published and eventually deleted detailing this strategy. It supposedly vastly outperformed every market index during the bear market, even with very cautious risk management.
If you’re on the less cautious side a simple eye backtest shows that you’d make well over 300% in the past year! I reccomend using market chameleon to search for IV/RV/SV gaps as it’s a solid free tool. Unfortunately I don’t have access to enough data to do a complete backtest but Barclay’s results with this strategy beat any fund that I know of.
The psychology behind this strategy is relatively simple. People often overpay for insurance. Options are used as insurance. So, options are often overvalued. IV is simply a way to measure this.
Thank you for reading this article! If you enjoyed this series and would like to discuss this further or critique it and beat it to a pulp, please leave it in the comments. All feedback is appreciated.
If you’d like to start a financial publication here on Medium with me, similar to Grant’s Interest Rate Observer or the Value Investor Club, reach out using this link!
If you’d like to see read the full series, it’s continually updated in this collection below!
Disclaimer: I do not provide investment advice and I am not a qualified licensed investment advisor. All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, or stock picks, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. I will not and cannot be held liable for any actions you take as a result of anything you read here. Past performance is not an indicator of future results.
