Bitcoin Covered Calls X AMA
Ask Me Anything with zeroxtinkerer | Quant Research Lead
An AMA stage was opened on Discord yesterday in preparation for the upcoming revamped Bitcoin Covered Calls strategy.
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Q. Let’s start off with a quick intro of yourself
My name is zeroxtinkerer and lead the quant research at Flynt. I enjoy tinkering with new technologies and looking for patterns in big data science and analytics.
Q. How long have you been researching for this new strategy and were there any difficulties you faced?
It’s taken about three months to research and stabilize the new strategy. I think the most difficult aspect of creating option based trading strategies, is the sheer size of the data from the options market. It is orders of magnitude larger than spot or perp data. Testing different parameters and re-building the backtesting framework itself took about a month and then going into the actual strategy, it is broken down into different steps which I wont bore you with also took 1~2 months.
Q. Jumping right into the new strategy, what is the major difference between the original strategy and this one?
The original strategy has actually also been upgraded. They both use something called the ‘UpMaybe Signal’. It’s an algo signal that tries to predict large moves before they happen. Our original strategy now uses this strategy and doesn’t enter positions when the signal is activated. The new strategy tries to capture the move by placing long calls and puts. The original strategy’s backtested APY increased from 32% to 54% and the new strategy ‘Bitcoin Covered Call X’ has a backtested APY of 106%. Also there is a lot of seasonality with returns. This means some years have very high returns (like +300% returns) whereas in more quiet years returns are more modest, around 40%.
Q. Many of our clients enjoyed the high yield but wanted something more risk adjusted. Would you say the new strategy holds lower risk levels than the original strategy?
Risk-wise they are almost the same. Their MDDs(max drawdowns) are both -16.3%. When longing options, not only is buying options cheap, you can’t get liquidated like in perps or using margin so it doesn’t increase risk. Buying options usually have a high failure rate(they expire to zero), but the cost is relatively low and the returns are very high when you do trade in the right direction.
Q. So I read through the docs and saw that the signal is named UpMaybe. Why is the signal named UpMaybe?
The signal is named after UpOnly podcast by Cobie and Ledger. The signal was originally designed to predict high volatility situations and it has a pretty good hit rate. But as no model is perfect we thought it was appropriate to name the signal UpMaybe.
Q. How often does the signal occur and what is the accuracy of the signal?
The signal has historically been activated 16% of the time with a success rate of the signal being 26%. However there are some failed short calls where the signal was not activated. Also the signal activations are highly concentrated so they may not occur at all in some years.
Q. Does the algorithm for the signal change?
It may change if we find ways to improve the profitability and lower drawdowns of the strategy. If we are confident about changes in the algorithm, we will be updating the backtests and posting them publicly.
Q. When will the strategy be live and available for our clients to subscribe?
You should be able to start subscribing on the 12th of May.
Q. For a client that is subscribed in the original strategy, how can they convert to the new strategy? Do they have to unsubscribe and wait a week? or can they join directly from the previous strategy?
The new strategy starts 2 hours after the old strategy. So you can unsubscribe from the old strategy and subscribe to the new strategy without skipping a week.
Q. Will the ETH strategy be next to be enhanced?
We are currently also researching ways to reduce risk and improve profitability for ETH too. However it is too early to say anything definitively.
Q. Will both strategies (old + new) remain, so we can choose? Or will the ‘old’ one become obsolete?
The old strategy doesn’t enter when the UpMaybe signal is active. You can chose either the original strategy or the new strategy according to what is a better fit.
If you want to understand our new strategy in more detail, click here to go to our docs to learn more!
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