|
Program Description:
Trading Methodology &
Risk Management
|
|
Diamond Capital Management currently
offers two trading programs,
the Enhanced S&P Program
(ESP) and the Stock Index Options
Program. The trading strategies
utilized by Diamond Capital
Management are proprietary and
confidential. The following
descriptions are of general
necessity and are not intended
to be all-inclusive.
Recommended Commitment
Diamond Capital Management recommends
that Clients open accounts with
a minimum of $100,000 for either
the Enhanced S&P Program
(ESP) or Stock Index Option
Trading Program in order to
ensure that Clients will have
sufficient equity in their accounts
to fully participate in the
Program. However, Diamond Capital
Management reserves the right
to waive this minimum funding
requirement.
Diamond Capital Management believes
that a long-term commitment
to its Program provides the
best opportunity to experience
profitable trading. A client
should be willing to commit
capital to the Program for at
least one year for a reasonable
chance to ascertain the level
of return targeted by the Program.
Enhanced S&P Program (ESP)
Trading Methodology
The Enhanced S&P Program
(ESP) consists of primarily
two basic trading components.
These include a trend-following
system enhanced with a premium
capture system.
Trend-Following System
This system utilizes a computerized
technical trend-following strategy
with various levels of money
management techniques. The principal
objective is to profit from
sustained futures price trends.
Trend following is a method
of trading which seeks to establish
and maintain market positions
based on major price movements.
The system first determines
whether the S&P market is
in a bull or bear trend, then
trades only with the trend until
it gets stopped out. A stop
would occur when the S&P
moves out of the current trend
but has not yet entered into
the opposite trend. Within the
Trend Following System, proprietary
short-term counter-trend signals
may be used to get out of the
current position or even trade
against the trend on a short-term
basis. A stop-loss does not
guarantee an exit at a particular
price.
Premium Capture System
Within this program, Diamond
Capital Management will also
write covered and/or uncovered
options to capture premiums
to increase the potential profits.
(Option positions may also increase
the risk of market exposure
from time to time.) Each month
puts and calls will be written –
the goal being to capture the
premiums either by letting the
written options expire or by
purchasing them back at lower
price.
The Volatility Index (also known
as the VIX) will be used to
determine the number of options
to sell and what strike prices
to be utilized. Strict risk
controls will be in place to
limit the downside risks and
achieve a desirable risk/reward
ratio.
Use of Trend-Following Analysis
The trend following portion
of the program may utilize short-term,
medium-term or long-term positions.
The program may trade both the
long and short sides of the
market. In its evaluation of
the markets, Diamond Capital
Management employs a trend-following
strategy. One method of successful
speculative commodity trading
depends upon establishing a
position and then maintaining
the position while the market
moves in a favorable direction.
The trader then seeks to exit
the particular market and may
establish reverse positions
when the initial trend either
does not materialize or reverses.
Trading will not typically be
successful if the particular
market is moving in an erratic
and non-trending manner. Because
of the nature of the commodities
markets, there will be frequent
false-trends. A pure trend-following
trading system, method, strategy
or model will never direct market
entry or exit at the most favorable
prices. Rather, this type of
trading method seeks to close
out losing positions and to
hold portions of profitable
positions for as long as the
trader determines that the particular
market trend continues to exist
and liquidates when the trend
reverses. As a result, the number
of losing transactions can be
expected to exceed the number
of profitable transactions.
However, if the approach is
successful, these losses should
be relatively smaller and should
be more than offset by a few
larger gains. Past results
are not necessarily indicative
of future results. The risk
of loss in trading futures,
options and off-exchange forex.
Use of Stock Index Options
The option trading for this
program is based primarily on
writing out-of-the-money call
and put options with the expectation
that the options will either
be bought back at a lower price
or expire. In order to efficiently
control risk, based on a proprietary
risk control system developed
by Albert Hu, the trader will
roll out of positions either
vertically (to a further month)
or diagonally (further out-of-the-money),
as determined by current market
conditions. From time to time,
options may also be rolled closer
to the underlying futures price
if the perceived risk/reward
is favorable. Technical analysis,
chart reading and pattern recognition
are used to determine which
options to write for each monthly
cycle. Occasionally, options
may be purchased to either hedge
positions or speculate on substantial
movement in the underlying stock
index. Indicators for this component
of the program are primarily
based on those used in the Stock
Index Options Program.
Stock Index Options Program
Trading Methodology
The Stock Index Options Trading
Program will take the place
of the previously offered Option
Trading Program. While the two
programs have many similarities,
after much consideration and
research it was determined that
the Stock Index Options Program
offers the best risk/reward
potential and is better suited
for the current environment.
Albert Hu has been actively
trading the Stock Index Options
Program for proprietary accounts
since June 2006. In October
2008, Albert Hu completely overhauled
the applied proprietary risk
control system.
Diamond Capital Management
currently engages in a program
of selling or “writing”
out-of-the-money options (both
puts and calls) on stock index
futures. From time to time,
stock index futures may be used
for hedging or short term trading.
The Stock Index Options
Program utilizes a strategy
that relies heavily on selling
or “writing” options
on stock index futures with
the expectation that either
they will expire without the
need to buy them back, or will
be bought back at a cheaper
price to realize a profit. However,
in order to control risk, based
on a proprietary risk control
system, the advisor will roll
out either vertically or diagonally
(to a further month and further
out-of-the-money options) to
buy space or space and time.
Diamond Capital Management may
also roll the options written
closer to the underlying futures
price if it perceives the risk/reward
is in its favor to do so. Occasionally,
Diamond Capital Management may
trade stock index futures, or
purchase options, either to
hedge other positions or speculate
on favorable short term substantial
movement in the underlying stock
index.
The implementation of this
trade program depends on statistical
analysis, chart reading and
pattern recognition to determine
which options to write on each
monthly cycle. Technical analysis
involves the study of charted
prices, volumes, momentum, strengths,
and moving averages to determine
the future course of prices.
Technical indicators also include
the prices of various options,
both in absolute terms in relation
to their historic price level,
and in relative terms comparing
the prices of puts to the prices
of similar calls.
It is the intention of Diamond
Capital Management to write
mainly “out-of-the-money”
puts and calls. “Out-of-the-money”
puts have strike prices below
the current price of the index,
and “out-of-the-money”
calls have strike prices above
the current index price. Thus,
if the index remains within
the predetermined trading range,
based on current volatility,
time to expiration, and various
other market conditions, and
the option remains “out-of-the-money”
until expiration, the puts and
calls will be profitable.
The trading strategies utilized
within this program have pre-defined
profit goals and risk exposure.
One important factor about the
program is that it had a major
overhaul as the end of 2008.
The changes from the overhaul
resulted in a more systematic
program with more rigorous risk
controls in place. Stop-loss
measures are utilized as well
as the use of derivative hedging
techniques to quantify market
exposure. Market conditions
are monitored for liquidity,
range of movement and implied
volatility measured against
historical volatility. In doing
so, Diamond Capital Management
employs money management skills
acquired over years of experience.
Please note that given the volatile
nature of the markets and possible
changes in economic or government
policies, amongst other factors,
that can not be controlled or
foreseen by the Advisor, no
assurances can be offered that
Diamond Capital Management's
trading actions and stop loss
measures will successfully contain
losses and result in profitable
trades for a Client, or that
a Client will not incur substantial
losses.
Diamond Capital Management
may refine or change trading
methods and strategies (including
technical trading factors or
analyses) at any time without
prior notice to or approval
by participating customers.
Diamond Capital Management in
its sole discretion may elect
to not trade at certain times
or may elect at times to trade
in smaller quantities. The exercise
of this discretion by Diamond
Capital Management may result
in missing significant profit
opportunities or avoiding risks
that may otherwise be realized.
Form of Margin Deposits
A customer participating in
the Managed Account Program
must deposit trading funds directly
in a commodity trading account
with an Futures Commission Merchant.
If Treasury bills are purchased
for a participating customer’s
account, such Treasury bills
are utilized as initial margin
for commodity interest transactions,
although the Futures Commission
Merchant generally credits a
customer’s margin requirement
with only 90% of the face value
thereof. All interest income
earned on such Treasury bills
is credited to the participating
customer’s account and
Diamond Capital Management will
not receive an incentive fee
on such interest income.
Diamond Capital Management's
Trading Strategies Are Speculative
in Nature
“Hedgers”
and “Speculators”
are the two broad classifications
of persons who trade in commodity
futures and options. The commodities
markets enable the hedger to
shift risk of price volatility
to the speculator. The usual
objective of the hedger is to
protect the profit expected
from farming, merchandising
or processing operations, rather
than to profit from futures
trading. Unlike the hedger,
the speculator generally does
not expect to deliver or receive
any physical commodity, electing
instead to offset a futures
or option position and realizing
a profit or loss based on the
difference between the price
at which a position was acquired
and that at which it was later
offset. The speculator risks
capital with the intention of
making profits from fluctuations
in futures or option prices.
Speculators rarely take delivery
of physical commodities but
rather close out positions by
entering into offsetting purchases
or sales of futures contracts
or options.
Trading Strategies and Systems
The trading strategies and systems
utilized by Diamond Capital
Management may be revised from
time to time as a result of
ongoing research and development,
which seeks to devise new trading
strategies and systems as well
as test methods currently employed.
The trading strategies and systems
used by Diamond Capital Management
in the future may differ significantly
from those presently used due
to the changes which may result
from this research. Clients
will not be informed of these
changes as they may occur.
Management Information: M. Kelly
Farrell
M. Kelly Farrell has over 24
years of investment experience.
In June 1987, she began her
career as an assistant to three
executive securities brokers
at Prudential Bache Securities
in Milwaukee, Wisconsin, which
provided sales and trading in
US and foreign equity securities.
In March 1989, Ms. Farrell left
Prudential Bache Securities
LLC and joined the Institutional
Custody Department at Firstar
Bank, N.A., as an Institutional
Custody Service Representative.
M. Kelly Farrell assumed a management
position in 1992, supervising
Institutional Custody Service
Representatives who had the
responsibilities of interfacing
with over 200 Registered Investment
Advisors, providing short term
cash investments, portfolio
trade settlements and various
other related institutional
custody services. M. Kelly Farrell
became the Trading Desk Manager
and General Securities Principal
for Firstar Investment Services
in May of 1997, where she supervised
Registered Representatives on
both the fixed income institutional
sales and trading desk, as well
as the retail brokerage-trading
desk. M. Kelly Farrell assumed
the lead trading position as
the Fixed Income Product Manager
for Firstar Bank’s Fixed
Income Department in February
of 1998. M. Kelly Farrell moved
directly into institutional
sales for Firstar Bank’s
Fixed Income Department in January
of 1999 until January 2001,
working with correspondent banks,
trust accounts, money managers,
mutual funds and high net worth
individuals, increasing sales
revenue by 500% in 2000. M.
Kelly Farrell also assisted
the Fixed Income Product Managers
perform various trading functions.
During this time, from January
of 2000 through December of
2000 M. Kelly Farrell also acted
as a General Securities Principal
for Quasar Distributors LLC
(division of Firstar), a mutual
funds distributor, in a consultative
capacity, and to provide managerial
and principal back up. In connection
with her registration as a Registered
Representative and General Securities
Principal, M. Kelly Farrell
passed the Series 7, Series
24 and Series 63 licensing examinations.
M. Kelly Farrell left Firstar
in January of 2001 to form Lochlan
Capital Management. After January
2001, she worked on developing
an option trading program and
offered that program to clients
of Diamond Capital Management
in November 2002. In July 2001
M. Kelly Farrell passed the
Series 3 and was registered
as a NFA Associated Member.
M. Kelly Farrell became registered
as an Associated Person (“AP”)
and became listed as a trading
and operational principal of
the Lochlan Capital Management
LLC, a registered Commodity
Trading Advisor (CTA), on August
10, 2001. In addition, M. Kelly
Farrell became registered as
an AP of R&S Investment
Services LLC, a registered Commodity
Pool Operator (CPO), and as
an Associated Person (AP) and
trading principal of Inlet Asset
Management Inc, also a registered
Commodity Pool Operator, in
August of 2001 until February
2002. M. Kelly Farrell remained
a NFA Associated Member until
February 25, 2002 at which time
she withdrew to form Diamond
Capital Management. M. Kelly
Farrell became registered as
an Associated Person on November
12, 2002 and became listed as
a principal of Diamond Capital
Management on November 11, 2002.
Management Information: Albert
L. Hu
Albert L. Hu brings to Diamond
Capital Management a background
including 30 years of financial
experience. Albert L. Hu, born
in 1947, earned a M. S. degree
in Applied Mathematics from
the University of Santa Clara
in 1973. Albert L. Hu was a
computer engineer at Amdahl
Corporation, a manufacturer
of IBM mainframe-compatible
computers, from June 1973 to
June 1980. From July 1980 to
Dec 1982, he was a stockbroker
for Paine Webber & Co. (later
acquired by UBS Financial Services
Inc. in 2000), which provided
sales and trading in US and
foreign equity securities. From
Jan 1983 to May 1983, he traded
on the New York Futures Exchange
as a floor trader. From May
1983 to April 1984 Albert L.
Hu stayed at home as a professional
investor. Albert L. Hu worked
for Merrill Lynch Pierce Fenner &
Smith from April 1984 until
June 1986 and Prudential Equity
Group from June 1986 to November
1987, both Futures Commission
Merchants providing sales and
trading in US and foreign commodity
interests, as an account executive.
Albert L. Hu became listed as
Associated Person of ALH Capital
Management, Inc. a registered
CTA and CPO from October 1987
until December 1990, and became
listed as a trading and operational
Principal of ALH Capital Management,
Inc. from March 1989 until December
1990. Albert L. Hu became listed
as trading and operational principal
and Associated Person of ALH
Brokerage, Inc., an IB, from
October 1987 until February
1989. Albert L. Hu joined Heritage
Commodity Consultants, Inc.
a registered CPO and CTA, in
October 1989 as Vice President
and Director of Trading, managing
trading and meeting with clients
to discuss the trading program.
He left Heritage in March 1992.
He spent the rest of 1992 developing
a computerized system for trading
foreign currencies and offered
that program to clients in January
1993. Albert L. Hu became listed
as Principal of ALH Capital
Corp., a registered CTA, in
April 1992 and became an Associated
Person of ALH Capital Corp.
in March 1994. During this time,
ALH Capital Corp. became registered
as a CPO in March 1994 until
April 1997. ALH Capital Corp.
was dissolved in 2006 and Albert
L. Hu withdrew his registration
from CFTC and NFA in May 2006.
At that same time in May 2006,
Albert L. Hu became registered
as CPO and was the pool operator
and general partner of Platinum,
LP, a limited partnership which
invests in both equities and
futures interests. Since the
partnership is only for Albert
L. Hu, his family members and
a friend, he filed for exemption,
under CFTC rule 4.13(a)(2),
for the Limited Partnership
in June 2007 with NFA and withdrew
his registration as CPO at the
same time. Albert L. Hu has
since continued to trade and
manage investments for Platinum
LP, under exempt status as outlined
above. In February 2008, Albert
L. Hu formed Los Altos Capital
Management LLC, a registered
CTA for which he became registered
as an Associated Person and
listed as a trading and operational
principal in April 2008. However,
due to lack of marketing effort,
he withdrew the registrations
in November 2008. In August
2009, Albert L. Hu became registered
as an Associated Person and
became listed as a branch manager
and principal of Diamond Capital
Management in September 2009.
His responsibilities at Diamond
Capital Management include risk
management, research, trading,
and product development.
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.
|
didn't find
what you were looking
for?
.
CHECK THE MANAGED
FUTURES CTA DATABASE
performance information
on approximately
100+ managed accounts
setup
a free access key
at
ALTAVRA.com
or call 1-800-998-7870
|
|
