Positive Impact
This month was marked by the optimism that long-term solutions will soon be found in the corona pandemic. Biden gives hope for quick vaccination results.
In general, Biden's speeches have so far had a fundamentally positive impact on the US markets. Both his statements on domestic and foreign policy issues.
Quote: "America is back."
His two trillion-dollar infrastructure package to rehabilitate the infrastructure and strengthen the economy was particularly well received.
The FED has announced that it will keep interest rates low for a long time, which has given the market further positive impulses.
ISM Purchasing Managers' Index (EMI) manufacturing was much positive in March.
Employment outside of agriculture exceeded its forecast.
The Reuters / Michigan Consumer Sentiment Index showed a positive development.
The annualized gross domestic product is much better than forecast.
Negative Impact
ISM purchasing managers index for the non-manufacturing sector (PMI) rather negative.
The ADP employment change remained below its forecast. Both at the beginning of the month and towards the end of the month.
The consumer price index excluding food and energy fell short of expectations for both the month and the year.
The retail sector suffered in March and fell short of expectations.
The orders for non-military goods without aircraft disappointed the analysts as well as the orders for durable consumer goods.
Generally
The dollar stabilized in March and recorded a significant upturn.
Asset Impact
Although the overall market tendencies go upwards the intraday volatility of the S&P 500 is rather high and behaves often atypically. As the asset is managed actively and supported by the algorithm the market volatility could not impact the CIC performance.
The market in April was characterized by new all-time highs and the typical challenges of an overbought market.
Minor announcements led to sometimes strong reactions and the rising uncertainty reached a level similar to the values around the turn of the millennium at the time of the dotcom bubble.
In order to avoid the risks of a suddenly falling market, there are currently also situations in which it is decided to refrain from an investment if the risk-reward ratio is not appropriate.
Very low volatility, which is currently having a negative impact on pricing in the options market is slowing down the development of the CIC at the moment.
Apparent opportunities turned out to be flops in the middle of the month. Thanks to risk management, the collapse of a stock of about 30% within one hour, in which the CIC was invested, had a negative impact of 1.2% on the portfolio. This was corrected during the rest of the month. This as well that the performance fee was calculated at 10% instead of 30%, which was corrected at the end of the quarter, has led to an adjustment of the NAV and the performance.
Despite a challenging market situation, the portfolio shows a balanced monthly result, with positive performance since launch in mid-February (+ 2.26%) and a very low variaton.
May
1. To protect the investor, a risk hurdle of 20% was imposed on the Portfolio Manager (PM) at the start of the AMC. This means that a maximum draw down of 20% is accepted. This maximized risk range had a weakening effect on the performance of the strategy on the one hand and on the other hand led to the fact that in intraday trading the positions had to be closed early or bought back. The early buyback scenario occurred twice in May due to the strong market volatility. The first time with 0.7%, the second time with 4.9% draw down.
2. The PM sets the strike positions based on the calculated volatility range of the underlying price. The volatility range itself contains various safety and risk zones which allow the PM to continuously monitor whether the strike positions are "in danger" due to unexpected, incalculable events and whether active intervention is required. Although the positions were not "at risk" according to the strategy at the events mentioned under point 1, they had to be closed due to the 20% risk hurdle.
3. The drawdowns have confirmed that the strategy does not allow any additional restrictions. The requirement of the 20% risk hurdle was withdrawn due to this. The strategy itself is designed to minimize risk absolutely. The residual risk is actively managed by the PM.
4. The current market still shows low volatility and strong market movements in intraday trading. Possible causes are inflation fears and the associated interest rate rise, overbought values and the almost daily statements by FED /FOMC exponents. This and a low need for hedging in the market put pressure on option prices, which are still low in the defined risk range and keep performance weak.
June
The market situation did not change significantly in June compared with the previous month. It remained unstable with very low volatility. In this respect, performance remained weak in relative terms. The announcement of the FED not to adjust interest rates for the time being despite rising inflation in the U.S. market makes the forecasts in the media very divergent. However, the statements pile up in the direction of an imminent crash and indicate signs as in the dotcom bubble of 2000.
With the trading strategy now freed from additional restrictions (see May Reporting), we achieved a plus of 0.89% in June and are only slightly below the initial value.
The portfolio manager consistently pursues the goal of steady gains, as far as possible without losses. In the daily decisions, the focus is primarily on risk minimization and the best possible trades within the calculated zone.
The market situation did not change significantly in July compared to the previous month. The markets remained in an uptrend with a high intraday fluctuation and a low volatility index. Accordingly, there was no positive impact on the CIC performance.
Market conditions continue to be very difficult for options trading. Nevertheless, the portfolio manager was able to keep the performance stable and make steady small profits without increasing the risk. This will continue to be the strategy, steady profit, albeit in small steps at the moment and with minimal risk.
It remains to be seen how John Biden's infrastructure injection will ultimately affect Fed policy and how strongly the markets will react to it. There are some voices in the media, which expect major changes in Q4. It remains exciting!
One µ away from breakeven we start into August 21.
The market remains very tense. The FED is discussing reduction of asset purchases (tapering) due to the positive economic development in the U.S. and the falling unemployment rates. An interest rate hike is expected in 2023. The impact of the Corona Virus Delta variant on economic development remains uncertain, as supply chain bottlenecks have already occurred due to closed docks in China, as well as distribution problems in the USA. This increases consumer prices, which further drives inflation and can lead to the fact that the Fed may decide to raise interest rates earlier. Investors still believe that monetary policy would not allow a downturn, accordingly, the markets continue to rise and option prices are down.
Thus, August also drew no significant change from the previous month and a boost to CIC performance was missing.
Since in this month some events took place, which can affect the intraday trade incalculable - e.g. FED meeting minutes, Jackson Hole Economic Symposium and Jerome Powell speech, the options expirations day. Therefore, in order not to expose the CIC capital to unnecessary risk, several days were not traded.
Nevertheless, the CIC was able to gain a little again and achieve a positive performance of 0.3%. Thus, we are just 0.48 USD away from the USD 1000 level to trade in the profit zone again. The CIC mantra remains: steady profit (albeit in small steps at the moment) and with minimal risk.
September is historically one of the poor months for the stock market. Movements are emerging in options trading that suggest a reversal of the longest winning run for U.S. equities since January 2018. We will see!
The market remained very stressed in September. The global uncertainties are moving the markets. The upcoming tapering this year of the FED, the announced interest rate increases of the BOE (Bank of England) already this year in Europe. It is to be expected that the Bank of America will also raise interest rates earlier than expected. Energy shortages, supply and distribution problems are weighing on economic development and contributing their share to the inflation trend, which is prompting the FED and central banks to make new re-evaluations. Not to forget - the Covid development and its effects remain an unknown that cannot be ignored.
Events in China, such as the new regulatory restrictions, the insolvency problems of Evergrande and shipping problems also weighed on the market.
The markets movement partially increased option prices and the demand for options. The volatility index reached values above 20 in a row again towards the end of September, which had not been the case for months. From a value of 30, the option prices become attractive and the performance trend starts to gain momentum.
For this month we are happy to close with a gain of 1% and are back in the profit zone. With the rising market changes we are very positive that the performance can be increased accordingly.
Market conditions are unchanged with an unfavorable impact on options trading. Prices are still unattractive. Unfortunately, the implied volatility, which represents the greatest dependency for options trading, has fallen back to lows to below 15 in some cases compared to the end of September (> 20). In October, the earnings once again drove up share prices, which massively reduced hedging momentum and lowered option volumes. This means that the risk-free distance to the strike may not be tradable. Nevertheless, the intraday fluctuations are very large due to the many economic uncertainties.
The negative performance in October can be linked to two events, both of the same origin. The positive result is that 100% of all calculated daily volatility of the underlying were correct since launch. Unfortunately, this can always be confirmed only in retrospect. There is no bet without risk and we calculate a residual risk of 2%. In the events mentioned, the daily volatility was fully reached (to 4551.63 points on 27.10.21) and due to the poor market conditions for options trading, the strike had to be set accordingly close to the maximum value (4550) of the calculation. If the price of the underlying asset had actually fallen below the 4550 mark (2% residual risk), the loss would have increased exponentially. Our active risk management is to buy back positions in risky market situations in order to avoid significant losses in case of uncertainty.
NEW C&S CIC STRATEGY FROM 2022 – CALL RATIO INDEX (CRI)
• Max 1% risk of loss
• Overproportionate profit potential
Contrary to expectations, 2021 did not bring in the performance we had assumed and with which we all started the race. The strongly positive average market development in the last 12 months with the correspondingly low hedging momentum had a strong braking effect on the original CIC strategy. From October to November, the market forced us to apply the full brakes.
The time was used to develop a new strategy that reduces the loss potential to < 1%, but can profit disproportionately from a rising market. The new strategy - Call Ratio Index (CRI) - allows for an opportunity in every market: If the market rises, it generates leverage on the positive development. If the market runs sideways, we have the cost-average effect. If the market falls, we buy positions cheaply, which increases the profit for the next upward trend. In the enclosure you will find a description of the CRI strategy.
The strategy was developed in cooperation with professional asset managers and has a proven backtracking of several years. It is our absolute goal to make up for the losses incurred and to generate profits on the invested capital in 2022. With the CRI strategy, we have laid a foundation for this.
The C&S CIC "Call Ratio Index" CRI strategy announced in December Reporting has been successfully implemented since January 2022.
The current market situation is heavily staffed with inflation, interest rate hike, and political issues, and suffered a sharp interim drop of 11.3% in January, ending the month down 5.9%. The CRI strategy was successful in that projected losses were no greater than 1% in a falling market. The CIC closed January with - 0.65%.
For February, a new cycle has been set up to reset the loss/earnings ratio. During the cycle, depending on the market situation, the book value may show losses/gains in the portfolio that do not correspond to the effective loss/gain that will be booked as a monetary value after the cycle is closed. The book values would only be booked in real terms in the event of a sale of CIC shares during the cycle.
We expect a turbulent market until the end of March and are prepared to take advantage of the opportunities. With markets rising again, we can increase the profit potential with the CRI strategy by a multiple of the market.