Market-neutral Strategies: Hedging Against Market Volatility – The crypto market has seen a lot of volatility in recent days. For those of us trying to farm or participate in DeFi, these large price swings increase risk and create uncertainty. As a result, we spend a lot of time at Senior Alpacas thinking about how we can create profitable production opportunities for you, ideally reducing risk to 0. Now, we offer a product that can. Exactly!
We are proud to introduce a new product category for Alpaca Finance – Automated Vaults! They execute complex strategies for you, just like an on-chain hedge fund, and our first automated vault offers what we’ve already described – the potential for high returns without market risk! Introducing a market-neutral strategy!
Market-neutral Strategies: Hedging Against Market Volatility
This vault offers high APIs, with hedge-neutral market risk, meaning it is profitable in all market conditions, just like investing capital in Statcoin loans!
How To Implement Market Neutral Strategies With Binance Futures
Some older alpacas should already be familiar with this concept. We’ve written about this strategy in the past, which you can find here on Alpaca Academy and here on our Profitable Farming Calculator.
Market-Neutral Strategy (Fake-Delta-Neutral) is a leveraged yield farming strategy where you can offer higher APY pairs and reduce your risk without market exposure. Automated Vault eliminates market risk by simultaneously taking long and short positions and adjusting them so you maintain neutral exposure. Or if we put it in alpaca language: high yield and low risk.
This is achieved by opening one long position and one short position in the optimal amount to achieve zero net market exposure on volatile assets. As the price of variable assets moves, Vault automatically adjusts the position to the right parameters so that you maintain 0 market exposure and you are profiting from the market the entire time.
Short Strangle Guide [setup, Entry, Adjustments, Exit]
As shown below, the main reason some users participate in DeFi is to avoid market exposure by lending stablecoins or fostering stablecoin-stablecoin pairs.
These are the most reliable strategies. When you calculate risk-adjusted return metrics like Sharpe ratios, you will find that investing in the above pools yields impressive results, and investing in Stablecoins is a very attractive proposition compared to banking or traditional financial products. However, let’s take a look at some APIs on farm management variable assets:
Close to triple digit APIs, the 10x you can get from investing in stablecoins is obvious when you only consider returns. However, many people still prefer to hold stablecoins. The main reason is that you don’t want to bear the market risk of holding volatile assets like ETH or BNB. For conservative investors, this is understandable. Even if you earn 25% per day by farming, you may not want to endure 10% daily price changes in crypto assets to get those APIs.
Exploring Market Neutral Strategies In Crypto Derivatives
Well, now with our market-neutral automated vault, all users get the same risk profile as investing in Statcoins, eliminating the aforementioned market risk. In other words, you can earn 30–100% API from farming pairs like BNB-USDT and ETH-USDT, but with as little risk as lending your stablecoin!
Taking risk out of the equation and automating market making on DEXs is the newest direction we are moving with this product unit.
We ran the first backtest with real BNB price data to simulate expected returns and got positive results, our strategy achieved 40%+ APR for Q4 2021 (1/10/21-31/12/21). This period saw a huge swing in BNB price from 392 to 669 which provided a very stable timeframe.
Alternative Risk Premia & Alternative Beta
The market-neutral automated vault is currently under development and we aim to launch in late February. Follow our Twitter and other social channels for updates on our progress on this and other alpaca initiatives:
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Critical Equity Hedging Strategies [new Findings]
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Athena UI UCITS Fund managed by Leinwall Asset Management (formerly known as Conservative Concept Portfolio Management AG (CCPM AG)) received Hedge Fund Journal’s CTA and Discretionary Trader Award as Best Performing Fund in 2022 and expires in December 2022. years , in the Equity Volatility Arbitrage (Mixed Strategic and Intuitive) category.
Market Makers In Options Trading: What Do They Do?
Launched in 2008 and seeded by several German pension funds, the market-neutral strategy was one of the first flexibility strategies to be devised in UCITS. Fifteen years ago, the GFC stimulated strong interest in alternative liquidity strategies, particularly in Germany, Austria and Switzerland. At zero and negative interest rates, alternative strategies are a form of “bond replacement” but now offer additional return and/or equity risk protection, with positive bond yields currently above 3%.
The fund offers a comparable profile to an 80/20 multi-asset fund, but improves the stability of the bond and equity components with embedded alternative overlap and is a major source of alpha. Stephen Kern, Head of Volatility Portfolio Management
Since its inception, the strategy has been a graded option forward strategy that aims to monetize investment grade bond and equity market corrections while controlling option premium costs and tail risks.
Common Hedging Discussions Part 2: The Tail Hedging Return Myth Debunked
The strategy and the fund have evolved over the past 15 years. In the year 2018, he moved from monthly options to weekly options to an active approach which became very liquid. By the year 2022, the UCITS fund objective will shift from equity market protection to market neutrality, matching the strategy in institutionally managed accounts from 2018. Options act as overlays, according to Stephen Kern, head of volatility portfolio management, who is ultimately responsible for trading Athena’s strategy. He will work alongside Axel Gauss, head of portfolio management, and will be assisted by Marin Arapović, a third portfolio manager in training who will join the firm in 2021.
An alternative strategy is the main engine in reducing alpha and equity risk. An interesting side benefit from traditionally managed bond securities or passive equity allocations. A selection strategy is roughly 80% strategic and 20% discretionary – decisions are made primarily by setting up payoff profiles and determining position sizes.
Put options have an average long-term negative beta spread of 0.2 due to their negative deltas and, unlike some other leveraged strategies, there is no assumption of any net vega or other “Greeks” equity market correlations. It also sets a target passive US equity exposure of 20% relative to the market neutral objective. For the most part, the portfolio’s beta is close to zero, but it may occasionally be net short or net long.
Understanding Market Neutral Strategies In Crypto Futures
“Typically, trading 6-week option leases allows deltas to quickly adjust to market neutrality,” Kern explained.
The option strategy is not designed to earn a real implied volatility premium and is not structurally long or short implied volatility, but focuses solely on monetizing negative deltas by managing vega risk and costs. Each option structure consists of three strike legs using a proportional distribution. Define a long corridor, which can be achieved by keeping a long and usually very small amount of funds. The distance between short positions and long tail risk hedges defines the underlying loss corridor, which has been affected by various market cycles and equity market corrections since the strategy’s inception in 2008. Notional exposure for options is typically 200% and total fund exposure is 480%.
Actual strikes that determine profit and loss corridors are 6 level charts with moving targets and weekly maturity scales, usually constructed using several different strike levels, all of which typically respond to market movements and expire at variable weekly intervals. Based on “As the next week matures, new hires add 6 weeks of maturities up to a 5-week CME week,” Kern said.
Market Neutral Strategy
The market-neutral strategy of the year, launched in 2008 and seeded by many Germans
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