Arin Theta strategy (“Theta”) seeks to provide a differentiated source of return from the Standard and Poor’s 500 Stock Index. Arin uses option trading techniques to derive incremental returns from underlying assets held in the strategy. Arin believes the trades will be profitable due to perceived pricing discrepancies in the options’ market. Arin will generally replicate the underlying performance of the index by investing in a portfolio of common stocks, exchange-traded funds (“ETFs”), and/or futures contracts.
As a matter of investment policy, Theta will invest, under normal circumstances, at least 80% of net assets, plus borrowings for investment purposes, in a portfolio of securities whose value is based on companies with market capitalizations that qualify them as “large-cap” companies. This policy may be changed without your prior approval. Arin considers a company to be a “large cap” company if its market capitalization falls within the range of market capitalizations of companies included in the Standard & Poor’s 500 Index. While Theta typically invests in common stocks, ETFs, futures contracts, and call options, it has the ability to invest in other types of equity securities such as preferred stocks and warrants that satisfy Theta’s investment criteria.
A portion of Theta’s assets will be invested in securities that track the performance of the U.S. largecap equity market. These securities include ETFs and futures contracts based on broad-based market indexes, like the Standard & Poor’s 500 Index. These securities may also include a group of common stocks that Arin believes will track the performance of large-cap equity market. Securities will be selected based upon their ability to provide exposure to the large-cap equity market with minimal tracking error. The percentage of Theta invested in these securities will change from time to time as Arin deems appropriate based on its analysis and allocation models.
Based on the account’s exposure to the large-cap equity market, Arin will trade options to try to take advantage of perceived pricing discrepancies in the options’ market. Arin identifies these trading opportunities by analyzing the volatility of contracts tried to the strategies underlying assets. The time to expiration, presumed dividend payments, level of interest rates, expected return volatility of the underling/referenced asset during the contract period primarily determine an option contract’s price or premium. Theta attempts to take advantage of differences between the volatility implied by one option’s price and that of another option. By analyzing the implied/forecasted volatilities of various option contracts, and comparing them to the implied/forecasted volatilities of a historically correlated security, Theta attempts to identify situations where one option is relatively overvalued. Theta then may establish a long position in a “cheap” or “fair value” option and a short position by selling the “expensive” option. Theta may employ other option trading strategies that may benefit from the relative richness or cheapness of option prices.
In selecting the options that Theta will trade, Arin first identifies exchange-traded options with a trading volume sufficient to preclude Theta’s trades from influencing prices. Arin next evaluates the available investment opportunities and uses Arin’s True Vol proprietary pricing algorithm to assist Arin’s traders in determining when to buy and sell options.
Arin also allocates a portion of Theta’s capital to short-term instruments of investment grade quality, including money-market instruments and money-market mutual funds. During certain periods, sometimes extended periods when we do not trade options in your account and Theta tracks the performance of the Index, less any implementation fees. The fee for Theta is 40 basis points or 0.40% per annum.
Please see Form ADV for More Complete and Important Disclosure
