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Cervino Capital Management
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Access This Page Directly:
http://cervino.altavra.com
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Program Descriptions
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Overview of Advisor's Methodology
The Advisor currently offers three separate
investment programs: Diversified Options Strategy
1X, Diversified Options Strategy 2X, and a Commodity
Options Program. Each investment strategy involves
trading in derivatives and is intended primarily for
sophisticated investors. The overarching goal of the
Advisor’s money management services is the capital
appreciation of its clients’ investments through
speculation mainly in exchange traded derivative
contracts such as futures1
and options on futures2.
No assurance can be given that this objective will
be met, and any investments in an account to be
traded by the Advisor should only be considered by
investors that can assume the significant risk
of trading futures and options on futures, including
losses in excess of their initial investments. The
Advisor will attempt to meet the objective of
capital appreciation for this investment program by
making trading decisions based upon proprietary
trading methodologies.
The Advisor generally relies on fundamental,
technical or quantitative analysis, or a combination
of each, in making trading decisions and attempting
to anticipate price movements.
Fundamental analysis looks at the factors that
affect the supply and demand of a particular
commodity or financial asset in order to predict the
expected market price for that asset. Such factors
include, but are not limited to, government actions
(e.g., Federal Reserve discount rate, imposition of
embargoes, price controls, etc.), the release of
information concerning weather conditions (e.g.,
reports of frost in certain growing areas), or the
release of economic statistics (e.g., Consumer Price
Index, Housing Starts, Unemployment Rate, etc.)
resulting in actual or probable significant price
movements.
Technical analysis is not based on the anticipated
supply and demand of the cash (actual) commodity or
financial asset; instead, it is based on the theory
that a study of the movement of markets themselves
will provide a means of anticipating future prices.
Technical analysis often includes the study of
intra-day, daily, weekly, and monthly prices, volume
and open interest data, and utilizes charts and/or
computers for analysis of these items. Another type
of technical analysis is market sentiment which is
based on the theory of contrary opinion and assumes
that when investors swing to emotional extremes they
are likely to be overreacting. Sentiment indicators
such as short sales or put and call activity is used
to highlight junctures of bullish excess
(overbought) and bearish excess (oversold), which
are useful leading indicators of trend exhaustion.
In addition to fundamental and technical analysis,
trading decisions may be based on quantitative
analysis, a technique that seeks to understand price
behavior by using complex mathematical and
statistical modeling, measurement and research. For
example, since an option’s price is a function of
its strike price, time to expiration, underlying
asset’s price and volatility, and short-term
interest rates, it is logical that a formula can
calculate option prices from these variables.
Therefore, utilizing statistical analysis, a model
of price variation on a particular futures contract
may be used to theoretically determine the fair
value of an option on such futures contract.
In developing its market opinion and evaluating
potential trades, the Advisor generally uses a
blended combination of mechanical signals and
subjective interpretation of fundamental studies,
technical and sentiment indicators, as well as
statistical probability analysis. This research
includes, but is not limited to, continuous analysis
of short- and long-term price series, the impact of
seasonal and cyclical price movements upon the
underlying price trend, fundamental factors
affecting supply and demand influences, and
application of statistical models in order to
consider risk factors associated with various
trading opportunities. The intent is to identify and
arbitrage price discrepancies that reflect under-
and over-valuations as well as directional trend
bias or trend-reversal/mean reversion opportunities,
and to produce a replicable trade execution process
consisting of positions with statistically high
probabilities of positive outcomes. To accomplish
this goal, the Advisor utilizes options to structure
complex positions that within one or across several
underlying asset exposures can tactically reflect
one or more trading perspectives, such as hedged
relative value, fundamentally-based, or
volatility/opportunistic investment strategies.
Risk control is achieved through a variety of means
which should in most, but not necessarily all,
market conditions help minimize the impact of
drawdowns. The first is portfolio constructions and
diversification such as the use of hedged positions
across several underlying assets; second is
controlling leverage through position sizing
adjusted according to account size, market
volatility and risk-reward analysis; and third is
stops based on money management rules. Risk
management is deemed to be an ongoing process and
therefore the Advisor continually monitors all
positions. Occasionally the Advisor may adjust
positions either by entering into new positions
which hedge existing market exposure, or by
liquidating and/or covering existing positions in
order to reduce market exposure or reset a position
at different strike price(s) and/or contract
expiration(s).
Prospective investors should be aware that the
Advisor's trading programs may be more aggressive
than most other trading programs. This is due to the
fact that the Advisor's trading strategy primarily
utilizes options on futures, and the Advisor will
typically adjust its positions on a regular basis.
As a result, it is anticipated that the velocity, or
turnover rate, may be substantially higher than the
turnover in other money management programs.
Accordingly, the Advisor’s trading strategy can
result in substantially greater commission charges
that may rapidly deplete the equity in a client's
account in the event the Advisor's strategies are
not successful. The trading methods employed
by the Advisor may be profitable overall, however,
there may be periods in which such trading methods
may result in substantial trading losses.
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Diversified Options Strategy 1X and 2X
The Advisor’s Diversified Options Strategy 1X and 2X
involve trading in a diversified portfolio of option
on futures contracts including options on equity
index futures. Diversified Options Strategy 1X is a
baseline program and the past performance of this
program is set forth in Section 7 Performance.
Diversified Options Strategy 2X is leverage at two
times the Diversified Options Strategy 1X program;
in other words, the 2X program will trade twice as
many contracts as the 1X program for the same
nominal account size. Accordingly, the additional
leverage of the 2X program is expected to result in
increased account volatility, and therefore an
increased potential for higher returns as well as an
increased potential for larger drawdowns. The
Advisor previously has not directed any accounts in
the Diversified Options Strategy 2X program.
These programs are designed to be an absolute return
program focused mainly on premium capture strategies
with the objective of generating positive returns in
most market conditions regardless of whether the
underlying market(s) is up or down. Both of these
programs focus their trading activities on a
portfolio of options on futures contracts
diversified across a variety of underlying financial
assets. Opportunity and risk exposure is further
diversified through the use of different types of
option combinations including, but not limited to,
bear spreads, bull spreads, condors, ratio spreads,
strangles and calendar spreads as well as naked puts
and calls. The variety
of position combinations that are possible with
options contributes to the creation of multifaceted
and versatile investment strategies tailored to
market conditions and trading outlook. Generally,
both the Diversified Options Strategy 1X and 2X are
counter-trend biased in the sense that these
programs will, for example, write calls into rallies
and write puts into declines. While the Advisor will
utilize mechanical signals as a component of its
investment process, unlike certain technical traders
the Advisor does not purely follow any systematic
entry and exit signals in implementing its trading
strategy for Diversified Options Strategy 1X and 2X.
Rather, there is a significant element of discretion
involved with Advisor’s formulation and execution of
its trading ideas for these programs.
The underlying asset classes and futures contracts
upon which both the Diversified Options Strategy 1X
and 2X focus their options trading consists
primarily of the S&P 500 equity index, with
additional portfolio exposure, but to a lesser
degree, in currencies (e.g., Euro, Yen), and U.S.
Treasuries (e.g., 10 Year U.S. Treasury Note) and
precious metals (e.g., gold, silver). In addition,
the Advisor may for accounts funded with Actual
Funds (see Section 2.5 Broker, Account Size, and
Funding) invest in fixed income securities that are
fungible for margin purposes. The forementioned list
of underlying asset classes is not meant to be
exclusive, and the Advisor may trade in other
markets in its own discretion in order to gain
exposure to opportunities in the majority of
actively traded markets, and to achieve a balance
across economic sectors while simultaneously
limiting, to the extent possible, undue
concentration in any particular economic sector. The
intent of such discretion is to increase
opportunities for gain, decrease risk and provide
more consistent returns.
The trading strategy largely involves, but is not
limited to, the implementation of option
combinations such as bear spreads, bull spreads,
condors, ratio spreads, strangles and calendar
spreads. The writing of “naked options,” is another
strategy that the Advisor may utilize from time to
time. In addition the Advisor may establish outright
long option positions, or establish long or short
futures positions under certain market conditions.
Options on futures may be used by the Advisor on
both a covered basis and an uncovered basis, but in
the vast majority of circumstances positions will
not be “covered” by the underlying futures
contract(s). Both put and call options will be
traded.
Due to the nature of the Advisor's trading methods
and the experience of its trading principal, the
portfolio often may not be diversified; in fact, on
occasion, there may be a heavy concentration of a
given position or a position complex, which could
result in a greater return or risk to the account.
While the Advisor may utilize contingent orders such
as “stop-loss” or “stop-limit” orders, such orders
will not necessarily limit losses to intended
amounts since market conditions may make it
impossible to execute such orders.
The foregoing investment principles are factors upon
which the Advisor bases its trading decisions for
both the Diversified Options Strategy 1X and 2X.
Such trading strategies have been and will be
enhanced or revised from time to time. The research
and trading methods of the Advisor are proprietary
and confidential. The description of this
program is, of necessity, general and is not
intended to be exhaustive.
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Commodity Options Program
The Advisor’s Commodity Options Program involves
trading in a diversified portfolio of option on
futures contracts based on commodity interests, and
excludes options on equity index futures. It is
designed to be substantially more aggressive
than the Diversified Options Strategy 1X resulting
in increase account volatility, and therefore an
increased potential for higher returns as well as an
increased potential for larger drawdowns. To the
extent that there is an overlap in underlying asset
exposure, the Commodity Options Program will
frequently deploy different option strategies or
tactics with different objectives in mind than the
Diversified Options Strategy 1X or 2X. For example,
the Diversified Options Strategy is oriented toward
premium capture strategies and generally
counter-trend biased, whereas the Commodity Options
Program will, in addition to premium capture
strategies, seek to take advantage of trending
markets through speculative
positions such as debit spreads, synthetic futures
and occasionally outright long option potions.
This program is designed to monitor and regularly
trade derivatives based on commodity interests in an
effort to be non-correlated to trading of
derivatives based on financial assets. The first
step and primary analysis will be based on market
fundamentals. This research helps validate the
likelihood of trends persisting or reversing.
Technical analysis is the second analytical step and
helps ensure timely trade entries as well as
identify support and resistance areas for stop
adjustments. Ideas will be executed by looking at
the option book for tactical opportunities. The
overall portfolio will work on two levels: (i)
approximately half of the portfolio will be focused
on premium capture strategies with the aim of
generating income from positions, and (ii) the
remainder of the portfolio will be dedicated to
speculative directional trades in the form of debit
spreads, synthetic futures and occasionally outright
long option positions. Premium capture strategies
may on occasion be converted into directional bets.
While the Advisor will utilize mechanical signals as
a component of its investment process, unlike
certain technical traders the Advisor does not
purely follow any systematic entry and exit signals
in implementing its trading strategy for Commodity
Options Program. Rather, there is a significant
element of discretion involved with Advisor’s
formulation and execution of its trading ideas for
this program.
The underlying asset classes and futures contracts
upon which the Commodity Options Program focuses its
options trading will consist of energy (e.g., crude
oil, natural gas), grains (e.g., corn, wheat),
industrial and precious metals (e.g., copper,
silver), softs (e.g., coffee, sugar), and
commodity-based currencies (e.g., Australian dollar,
Canadian dollar). In addition, the Advisor may for
accounts funded with Actual Funds (see Section 2.5
Broker, Account Size, and Funding) invest in fixed
income securities that are fungible for margin
purposes. With the exception of equity indices such
as the S&P 500 which will not be traded in the
Commodity Options Program, the forementioned list of
underlying asset classes is not exclusive, and the
Advisor may trade in other markets in its own
discretion in order to gain exposure to
opportunities in the majority of actively traded
markets, and to achieve a balance across economic
sectors while simultaneously limiting, to the extent
possible, undue concentration in any particular
economic sector. The intent of such discretion is to
increase opportunities for gain, decrease risk and
provide more consistent returns.
The trading strategy largely involves, but is not
limited to, the implementation of option
combinations such as bear spreads, bull spreads,
condors, ratio spreads, strangles and calendar
spreads. The writing of “naked options” or synthetic
futures are other strategies that the Advisor may
utilize from time to time. In addition the Advisor
may establish outright long option positions, or
establish long or short futures positions under
certain market conditions. Options on futures may be
used by the Advisor on both a covered basis and an
uncovered basis, but in the vast majority of
circumstances positions will not be “covered” by the
underlying futures contract(s). Both put and call
options will be traded.
Due to the nature of the Advisor's trading methods
and the experience of its trading principal, the
portfolio often may not be diversified; in fact, on
occasion, there may be a heavy concentration of a
given position or a position complex, which could
result in a greater return or risk to the account.
While the Advisor may utilize contingent orders such
as “stop-loss” or “stop-limit” orders, such orders
will not necessarily limit losses to intended
amounts since market conditions may make it
impossible to execute such orders.
The foregoing investment principles are factors upon
which the Advisor bases its trading decisions for
the Commodity Options Program. Such trading
strategies have been and will be enhanced or revised
from time to time. The research and trading methods
of the Advisor are proprietary and confidential.
The
description of this program is, of necessity,
general and is not intended to be exhaustive.
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Management Information
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Davide Accomazzo
Davide Accomazzo has been trading professionally
since 1996. From July 1996 through December 1997 he
was employed as a Euro-convertible
bond/international equities sales trader for
Jefferies and Company, Inc., an investment bank. In
this position, he covered many international funds,
including: Arca, La Generali, Hansberger, New Africa
Fund/NCM, Cranberry Rock, Pontaray, Weston Group,
and Oppenheimer retail international desk. In
January 1998 he left to trade his own capital and in
November 1999 he started Kensington Offshore
Limited, a speculative hedge fund which outperformed
the S&P 500 market benchmark during the 1999 through
2002 equity markets’ boom and bust cycles. In
February 2001 he launched Kensington Capital
Management, LLC, a commodity trading advisor that
focused on trading options on futures and currency
futures. Mr. Accomazzo was signed on by UBS Wealth
Management USA, a broker-dealer, in October 2004 to
manage the portfolios of high net worth investors,
and withdrew as principal and associated person of
Kensington Capital Management, LLC in November 2004.
In October 2005, Mr. Accomazzo resigned from UBS
having co-founded Cervino Capital Management LLC
with Michael Frankfurter. Mr. Accomazzo
received a Laurea in Political Sciences and
International Relations at Universita' degli Studi
Genova in 1990, a Masters in Arts in Mass
Communication from California State University
Northridge in 1992, and his MBA in Finance at the
School of Business and Management at Pepperdine
University in June 1996. During his academic career
he worked in collaboration with Investment
Technology Group (“ITG”) on projects that focused on
automated portfolio management through Quantex,
ITG’s electronic execution system. Since August 2007
Mr. Accomazzo has also served as an adjunct
professor at Pepperdine University, Graziadio School
of Business and Management,
where he teaches courses on global capital markets
and portfolio investment management.
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Michael W. Frankfurter
Michael “Mack” Frankfurter started his career in the
financial services industry in 1989 with Bank of
America, a commercial bank. In July 1991 he was
recruited by private equity boutique The Echelon
Group, Inc. (subsequently restructured as The
Echelon Group of Companies, LLC) as vice president
in charge of operations of Echelon’s managed futures
business. As an associated person, Mr. Frankfurter
was involved with the startup, accounting, client
services, compliance, backoffice and marketing of
multiple Echelon-related joint venture commodity
trading advisors including Ark Capital Management,
Dreiss Research Corporation, Echelon Capital
Advisors, Jackson Grain Management, Longview Capital
Management, Range Wise and Royal Union Petroleum
Group. Mr. Frankfurter was also involved in
activities related to the establishment of other
Echelon-related ventures including Dignity Partners,
Inc., a viatical settlement business. Dignity
Partners institutionalized the viatical settlement
industry by successfully completing a private
placement of $50 million in securitized notes (voted
“1995 Private Deal of the Year” by Investment
Dealers Digest), and a subsequent initial public
offering in 1996. Later renamed Point West Capital
Corporation, the company launched a venture capital
subsidiary, a correspondent broker subsidiary and a
specialty business-lender subsidiary. During this
time Mr. Frankfurter was responsible for
implementing and maintaining both Echelon’s and
Point West’s information systems while continuing to
administer to Echelon’s managed futures business.
Mr. Frankfurter left Echelon and Point West in
January 1999. After spending some time off sailing
and traveling, he worked as a consultant on projects
for FleetBoston Robertson Stephens. In January 2000
he briefly became an associated person of The Pixley
Group, an introducing broker, prior to being
recruited in July 2000 by The Capital Markets
Company (Capco) as senior consultant to work as
project manager for an online private banking
startup and joint venture between Scudder Kemper and
Thomas Weisel Partners. That long-term project was
followed by an international inter-company trading
systems implementation for Commerzbank involving
Royalblue fidessa, and a T+1/STP readiness
assessment for Bank of Montreal. He left Capco in
April 2002 and in May 2002 founded NextStep
Strategies, LLC which focused on consulting and
headhunting for financial services companies.
NextStep Strategies was also registered as a
commodity trading advisor and commodity pool
operator from March 2003 to July 2004. Mr.
Frankfurter joined UBS Financial Services, Inc., a
broker-dealer, in May 2004 in their Beverly Hills
office and provided financial advisory services to
clients until June 2005. He rejoined NextStep
Strategies, LLC in July 2005 and co-founded Cervino
Capital Management LLC with Davide Accomazzo in
August 2005. In September 2007, Mr. Frankfurter
became an associated person of Managed Account
Research, Inc.
(“MARI”), an introducing broker, where he functions
in an operational and administrative capacity.
The
descriptions above
are from the manager’s disclosure document.
THE
RISK OF LOSS IN TRADING FUTURES, OPTIONS AND
OFF-EXCHANGE FOREX
CAN BE SUBSTANTIAL. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS. PLEASE READ THE
CTA'S RISK DISCLOSURE DOCUMENT CAREFULLY BEFORE
INVESTING MONEY.
Disclosure Statement
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