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Pure Alpha Strategy

Overview

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The Pure Alpha Strategy is focused on stocks with highly liquid options and trading momentum-based moves, for potentially explosive profits on a risk-adjusted basis.  Trades primarily consist of front-week expiration options.  The strategy also trades options on stock earnings, with all trades offering the potential for asymmetrical returns.

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The strategy considers the 'Whole Account' concept in trade sizing, risk/position management, and notional hedging elements. 
 

 

Features

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  • Signals delivered via auto trade available through Global Auto Trading

  • No set or subscription fees.  Fees variable based on value provided and invoiced to client

  • Opportunity to profit regardless of market direction 

  • Designed for clients to incrementally scale trade sizing with account growth
     

What it Trades

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  • Directional/momentum option trades on highly liquid, high beta stocks for front-week expiration 

  • Intra-week hedging with daily expiration Index options, or ITM or OTM stock option hedges (Delta-Skew) against core directional trades.

  • Relative Value / Pair Options Trades on correlated stocks 

  • Option Earnings plays on highly liquid, high beta stocks

  • Macro and news-based option trades, on both Index and Stock Options, with one day up to two weeks before expiration
     

How It Works

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  1.  Submit New Client Agreement Form here

  2.  Determine Risk Budget (see below)

  3.  Periodically review performance and make trade size/scaling adjustments as needed

  4.  When applicable pay any invoiced fees 
     

Trade Size & Allocations

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The strategy is designed for clients that are willing to start with up to $1,000 of risk per trade, with an average risk per trade between $500 to $1,000 at 1x scale.

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We specify the number of contracts when we send the signals for auto trade at 1x scale.  The strategy is designed for clients to 'mirror' this sizing in order to properly execute the strategy.  This is a crucial aspect that a client is comfortable with this sizing at the minimum, as this maintains the integrity of overall trade and risk structures and ratios.

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This is a feature of auto trading that allows a new client to onboard at anytime, start at 1x the size we are trading per trade, and then scale as their account grows, or start at a higher scale than 1x if they choose to do so.  
 

Risk Budgets & Scaling

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While each client must determine their own risk, in order to properly participate in the strategy a $25,000 Risk Budget is generally the optimal minimum starting RB or account size needed to allow the strategy to properly execute at 1x scale, with a Risk Budget to start of $50,000 being more than an ample starting amount needed at 1x scale.    

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This is not an individual recommendation or advice for how much to risk, merely how the strategy was designed and clients must determine if this is suitable for them.  In many instances, the amount of that a client establishes as their Risk Budget, if in the ranges mentioned above, will be suitable to fund an account with and execute the strategy to start with at 1x scale.

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Since we usually have some form of 'hedges' on the directional positions, the MAX DIRECTIONAL risk week-to-week is GENERALLY around $2,500 to $5,000 per week total at 1x scale.  This equates to roughly 10-20% of a $25,000 starting Risk Budget as the max risk at any given time at 1x scale on a weekly basis.

 

Additional risk also exists in range bound markets with premium decay against both sides (Core and Hedges).  In short, the weekly risk if overall defined by total capital outlay (long premiums). 

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At increased scaling levels these amounts are the multiple of that increased scaling level for the dollar amounts with the percentage of the client's current Risk Budget remaining the same.  

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With risk and all factors combined in the strategy design, this strategy is designed for clients to scale and add an additional unit of risk/increase position sizing by 1x with every $25,000 to $50,000 in net profits after fees, or each time they capture net profits equal to their initial Risk Budget.

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An example of this would be:

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  • Client starts with a $25,000 Risk Budget (1x Scale), average position size of $1,000 or less

  • Client captures $25,000 in net gains, scales to 2x, now has a $50,000 total Risk Budget, average position size of $2,000 or less

  • Client captures another $25,000 in net gains, scales to 3x, now has a $75,000 total Risk Budget, average position size of $3,000 or less

  • Etc....

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