Objective

Our primary investment objective is to achieve competitive and persisting risk-adjusted returns.

 

 

 

Investment Strategy

We believe the path to persisting, outsized investment return is:

• a) Identify risks, take calculated risks and manage risks.
• b) Consistently identify risks, take calculated risks and manage risks.

Our investment is not driven by expected returns or incentive fees. It is driven by market probabilities, which we constantly assess based on quantitative modeling that incorporates both fundamental and technical methods. Our quest is longevity, and we only invest in high probability positions judiciously sized to their risks.

ICIG chooses futures option selling as its primary investment vehicle because it balances intrinsic value, risk, and efficient use of capital. The U.S. equities market has an intrinsic edge as it tends to go up given enough time, although its return may not be enough to many investors and is subject to large sustained drawdown from time to time. Futures have efficient use of capital, but the magnified directional move of the underlying instruments carries unpalatable risk. Options buying has the most effective use of capital when market moves in your favor, but in general it is an uphill battle against highly adverse statistics due to volatility disparity. It is suitable as speculation but not as core investment over the long haul. Stock options selling provides higher volatility premium, but it carries excessive company specific risks. Please note when dealing with selling options, there is always the possibility of unlimited loss. Integra opts to pursue an OTM futures option selling strategy as it offers key benefits as well as the potential to mitigate some of the risks. It is underlined by the liquid, relatively stable futures and has efficient use of capital. In the meantime, options on futures move generally slower and thus carry less risk than the futures themselves. It also has the intrinsic edge of collecting volatility premium at strike levels far away from the current market price. Integra's trading strategy and risk management doesn't guarantee return.
 

Investment Risk

Still, many investors are deterred by unlimited risk associated with future options selling. ICIG believes the notion of unlimited risk is true in theory but misleading in practice. It only means option selling does not have a built-in structure to limit risks, unlike option buying that predefines maximum risk. So selling futures option is not a fire-and-forget strategy. However, the limitation of the instrument does not stop one from managing the risks. Systematic risks do not occur overnight. Market cracks occur over time and are discernible to those who are willing to do persistent due diligence and make hard decisions along the way. Therefore, in order to manage risks involved in options selling, ICIG follows not a single formula but a methodology of managing the full trading lifecycle – research, position entry and close, and review and adapt. Rather than an add-on layer, ICIG treats risk management as the deep core of the strategy itself, so essential that we believe risk management makes or breaks option selling and is the true edge of every successful option seller.

In general ICIG’s risk management incorporates three elements: diversification, market analysis, and money management.

• 1) ICIG diversifies not only across uncorrelated markets but also across different strikes and expirations to enable what we call “position elasticity”. Position elasticity allows ICIG to decipher the market not as binary events but as a spectrum in order to withstand noise while not missing regime changes.
• 2) For market analysis, ICIG’s goal is to determine the current market regime, identify pivot levels that induce regime transition, and assess the probabilities of reaching these pivots. To this end, ICIG employs quantitative modeling on technical and fundamental data to characterize historical market regimes as well as price and fundamental patterns within each region and region transition, and leverages the models’ predictive power to gauge the current market.
• 3) The third tenet of ICIG’s risk management concerns money management. Closely tied to diversification and market analysis, ICIG’s money management pays close attention to margin management both at individual position level and at portfolio level. It follows empirical rules that allocate capital dynamically over markets, expirations, and strikes in conjunction with higher ranked entry and exit signals from ICIG’s quantitative models.

Collectively, by keeping positions small, diverse, and dynamically adapted to market, ICIG has found little risk in future options selling that it could not manage. ICIG believes that futures option selling, when handled with discipline and due diligence, could be a conservative implementation of an aggressive strategy akin to defensively driving a turbo charged car.