February 14, 2018
We would like to take this opportunity to respond about recent activity
in the OPT ES Multi-model systems.
Let’s discuss the position(s). The entries of trades starting on Jan. 30th through
Feb. 4th were consistent with our back testing, out of sample and real time data.
The open trade drawdowns were within the parameters established by our research as well. This continued into early Monday afternoon, Feb. 5th.
Then, the unwinding of the volatility trade (XIV) created an unprecedented move
in the VIX and equity indices. The exit protocols became out of sync with the
market and did not activate. The depth of our research to 1999 has never identified such a deviated event. These same protocols had worked in our back testing through 9/11, 01-03, 07-08, 2010 Flash Crash and other volatile periods.
The markets continued to fall causing us to exit on some platforms in the evening session, Feb. 5th, to avoid any further declines. The system, which can take multiple entries (i.e. add on a trade), had turned many negative trades to positives in the past. Unfortunately, the addition position to this trade added to the drawdown.
As painful as this has been for all involved we had to ask ourselves three key
questions: What happened? How do we fix it? What is the outlook going forward? We immediately began working to identify the issue, fix the problem and mitigate future risk to protect client capital. The research is being completed
and we will employ a hard stop based on trailing profits which will attach to every
trade. Also, if the stop is triggered the systems will step aside for a 3-5 day period
allowing the market to normalize because these generally occur during volatile periods. These adjustments will be made to all current systems and included in
new releases moving forward. We will provide more information when complete.
We continue to believe in our process and hope to earn your trust and confidence
back in the future.