Cheap Convexity: Low Cost Trades with Asymmetric Returns

Helium · January 14, 2022, 6:12pm

Access cheap, positive edge trades with nonlinear payouts and high reward to risk ratios. Defined max loss. Optimized daily.

How Does it Work?

Every day, Helium looks through the universe of all possible debit ratio spreads to find trades that best satisfy a balanced combination of:

1.) High Convexity (gamma) & High Reward:Risk: You can think of this as optimizing for potential acceleration in the value of the option, relative to the price of the underlying asset.

2.) High Market Expected Value (expected value): Helium tries to maximize the expected terminal value of each position, as determined by market prices & Black-Scholes implied probabilities. Helium uses conservative assumptions to reduce the likelihood of false positives.

3.) High Helium Expected Value (expected value): Using highly regularized machine learning on historical options prices, Helium tries to maximize the expected terminal value of each trade.

4.) Small Time Decay (theta): Helium tries to minimize the carrying-cost of being long options. Theta represents the daily money lost by holding an option if nothing else happens.

5.) Helium Uncertainty > Market Uncertainty: By comparing market uncertainty to Helium uncertainty, we can seek out underlyings with potentially under-priced risk.

6.) Low Price: Looking for cheap convexity means optimizing for cheaper options/spreads (less possible max loss).

7.) Long Trade Duration: Helium optimizes for options longer to expiration in order to maximize the time for a big underlying move.

8.) High Maximum Option Lifetime Value: Helium trains an AI to predict maximum price over an options lifetime. Then, it optimizes to maximize this value for the long leg of the option and minimize this value for the short leg.

9.) AI Price Forecasts: Using machine learning price forecasts, Helium weights call options higher on bullish stocks (long delta) and weighs put options higher on bearish stocks (short delta).

10.) Low Implied Volatility Rank: (IVR) Helium is looking for assets with lower IV (relative to yearly highs and lows) in order to take advantage of potential IV expansion from options priced relatively cheaply.

11.) High Liquidity: Helium optimizes for trades with tighter markets as measured by the bid-ask spread.

12.) High Historical Performance: Helium optimizes for models with a historically high risk-adjusted return if you had opened up a new trade every day it was available.

13.) Selling High IV & Buying Low IV: On a relative basis, Helium optimizes for selling options with higher implied volatility and buying options with relatively low implied volatility.

One Click Trade Execution: Automatic limit order algorithm to get filled at attractive prices