Most investments are negatively skewed (fat left tail) as a result of widespread short volatility/long carry and mean reversion trades – all founded on the idea that anomalies should revert to the mean, or colloquially, “go back to normal.” Logica seeks to be on the other side of this, understanding that irrationality and liquidity constraints can drive “not normal” to excessively anomalous.
With this philosophical backdrop, Logica aims to generate convex gains alongside concave losses while always maintaining a long volatility approach – all trades are founded on getting additional upside when “right” and minimizing loss when “wrong”. Logica seeks to provide positive skew (fat right tail), or broadly, greater upside volatility than downside volatility. A “big” move should be a gain, not a loss.
More powerfully, various proprietary edges around Gamma scalping, trading, and optimized monetization and portfolio balancing aim to provide carry without the need to short volatility – founded on the thesis that trading can pull enough money out of the market to cover the costs of holding volatility and convexity. One should not need to “short vol”, or put on a counter-thesis exposure, in the goal of carrying long volatility. Accordingly, much of the portfolio consists of at-the-money (“ATM”) index options that provide the highest exposure to Gamma, Vega, and liquidity – everything one should want to best cover market downside without future knowledge of the path it may take. The focus on ATM is in stark contrast to our peers who, at large, utilize Out-of-the-Money (“OTM”) protection that introduces significant “path dependency” by relying on very low probability outcomes to achieve pay off (the once in a multi-decade event) vs. the regularity of payoff that ATM protection provides. Logica prefers insurance with no deductible.
The Illusion of Skill - Evaluating Funds With Skewed Distributions
The Sharpe Ratio: A Blunt Weapon - Hiding the Risk of Asymmetric Returns