The Quantitative Methods Fund is designed to capitalize on what appear to be substantial discrepancies in the prices of listed derivatives. The strategy trades primarily equity options based on differences between their market price and implied theoretical price calculated using options pricing models.
In efficient markets, these opportunities should not exist due the vast amount of participants coming into the market and removing such incorrect pricing. However, in reality, some opportunities still arise due to individual capital constraints and restrictive mandates for large institutions.
Sonic’s flexible mandate allows us to go where other institutions can’t, often taking advantage of discrepancies in small-cap equity options that most investment managers choose not to cover.
While most trades are selected based on mathematical pricing discrepancies, some directional positions may be taken in the form of individual options trades or outright long and short equity positions. Directional trades are selected using our internal skew model, which approaches the market with a long-bias to benefit from the general upward drift in stock prices and seeks out investment opportunities with return potential far in excess of every unit of downside.
Even more than our other products, this strategy emphasizes the use of equity derivatives and any interested investors should be well versed in the Risks and Characteristics of Standardized Options.