ARA seeks to enable investors to utilize volatility as an asset so they can exploit market conditions by employing long and short volatility exposures.
ARA’s proprietary methodology gives investors the opportunity to capitalize on short-term intra-market, capital structure valuation discrepancies, and cross asset class valuation dislocation by managing a Vega, or volatility, portfolio through a series of cash instruments, swaps, options, and other derivatives based investments on varying assets and asset classes.
PROCESS
- Review client requirements
- Identify parameters i.e., return objectives, asset class universe, and risk controls
- Determine strategy constraints i.e., liquidity, event risk limits, market and/or sector neutrality, turnover and holding period
- Perform backtesting and stress testing of proposed strategy
- Negotiate final terms
- Implement and monitor strategy
Opportunistic Strategies Employed
Outright views on volatility – Express directional opinions about future volatility with long or short positions in options
Relative value volatility trades – Use options of two different stocks based on the fundamental view of the relationship of the volatilities of both underlying
Implied volatility skew structures – Speculate on relative levels of implied volatilities across strikes of the same underlying
Dispersion trades – Exploit the mispricing of index options relative to the index component’s options
