We have been working on this for some time now but we started to deploy it this week in the Hedge Fusion Strategy.
It keeps in the spirit of our trading and risk management style and is some REALLY powerful stuff. Basically it works like this - The last 5-10 minutes of each trading day the model scores the Gamma skew for QQQ options. Not the ETF itself but the options on the top QQQ Holdings. Without giving away too much tradecraft it simply spits a score, either positive or negative, with positive being bullish and negative being bearish.
While extreme scores can represent strength or weakness, lower scores on the positive or negative side of the spectrum can produce amazing opportunity as well. The real fuel here is the daily expirations on QQQ options and at a relatively large scale even the scope of the liquidity available. It also does really well tracking when the market is trending in one direction or the other.
Make no mistake, like anything there will be days, and even several consecutive days, where the signals are just 'off target'. This is where risk management and position sizing is key and the typical 1-2% of risk per trade makes sense to start. Of course hedging with this at a fraction, say around half the size of exposure of the main sentiment, will dampen volatility but also somewhat dampen gains over time.
We are currently in talks with a very large investor who is seeking to potentially lock in exclusive rights to the daily signals for upper six to low seven figures per year, but as with everything else those dogs can have spots too so we are weighing the pros and cons of that versus just keeping it in house and for our retail clients.
Below is the data since 1 January 2024. While the strategy would likely only produce a win rate of just over 50% over longer periods of time, the projected Profit Factor is around 3:1, which is like fishing with dynamite.
PDF attached with YTD data...
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