About HB Capital Management, Inc.

WHO IS THE NUMBER ONE RISK ADJUSTED TRADER? Click here.

Summary: The HB trading program is an option writing program that generates returns primarily through the sale of options while occasionally employing the use of hedging strategies such as the purchase of spreads, strangles, or straddles, or the outright purchase and/or sale of futures. Products traded are highly liquid, including but not limited to crude oil, natural gas, coffee, beans, corn, and silver. Basically, the trader sells out-of-the-money options in an attempt to capture premium when the options expire worthless. Trading is 80% discretionary and 20% systematic, based on technical research. Stops are not used in the program, rather, risk is managed with the use of hedging strategies if necessary. Trading is reduced during periods of extreme volatility, for example, September thru November of 08. Average trade length is 2-3 months. AUM is $16.9MM. Minimum account size is $50K. Average margin usage is 10% but has reached as high as 27%. Maximum daily draw-down has been 6% with a maximum monthly drawdown of 2.8% recorded in May 09. Trades are executed for all accounts at once in a block and then allocated manually by the clearing house. In the event of a split fill, the FCM handling block orders will allocate in a systematic and non-preferential manner, using a low/low method. Fee structure for the program is currently 2X20 and high water marks are used. There are two traders with authority over the account. In the event that one of them is incapacitated, the program will still function as usual. The program executes approximately 1,950 round turns per million. There is no lock-up period so redemptions can be made daily.

From HB DDoc:
The implementation of this trading program depends on both technical and fundamental considerations. Technical analysis involves the study of charted prices, volume and momentum to determine the future course of prices. Other analysis may also be performed on the prices of various options, both in absolute terms in relation to their historic price level, and in relative terms comparing the prices of puts to the prices of similar calls. Implied and historical volatility of both the option and its underlying commodity are also studied. Fundamental considerations, utilized on a commodity by commodity basis, include supply and demand, seasonal movements as well as business and economic factors, governmental policies, weather, and other worldwide events, which can influence the commodity markets.
The predominant strategy used in the commodity option program is to sell medium dated “out-of the money” options (those expiring in 1-3 months). "Out-of- the- money" puts have strike prices below the current price of the underlying futures contract, and "out-of-the- money" calls have strike prices above the current price.
Profits are derived when the price of the options that have been written (sold) declines such that the options can be purchased for amounts less than the price at which those options were initially sold. Profits also are realized when options expire worthless, providing full profit on the option premium sold (after commission and other fees).
The profitability of a trading program consisting of selling options on a futures contract depends upon the subsequent price movement of the underlying contract. For example, if the program writes puts on a commodity contract and the puts are not bought back prior to expiration, the strategy will be profitable if the commodity contract is above the strike price of the put when the put expires. If the price of the underlying contract is below the strike price of the put when the put expires, the strategy may potentially produce a loss.
Seasonal and spread trading - HB seeks to profit from seasonal patterns inherent in various commodity markets. The trades taken may be outright long (buy) and short (sell) positions or spread trades between two similar commodities. Seasonal trading may also employ the use of buying and/or selling options.
Stock Market timing – HB has developed a proprietary program for trading the stock market. HB may take a long position when a buy signal is generated for the stock market and may take a short position when a sell signal is generated.
Trend following - One technical system developed by HB is designed to identify trending markets.
When such trends are identified, positions may be taken in the markets based on computer generated signals.

For more information or to request a disclosure document please contact your representative at Managed Capital Advisory Group, Ltd. This report does not take into account the investment objectives, financial situation, or particular needs of any particular person. Investing in securities and other financial products entails certain risks, including the possible loss of the entire principal amount invested. Certain investments in particular, including those involving structured products, futures, options, and other derivatives, are complex, may entail substantial risk, and are not suitable for all investors. The price and value of, and income produced by, securities and other financial products may fluctuate and may be adversely impacted by exchange rates, interest rates, or other factors. Prior to effecting any transaction in options or options-related products, investors should read and understand the current Options Clearing Corporation Disclosure Document, a copy of which may be obtained on request from your Managed Capital Advisory Group, Ltd. representative. Certain securities may not be registered with, or subject to the reporting requirements of, the US Securities and Exchange Commission or any comparable regulatory authority. Information available on such securities may be limited. Investors should obtain advice from their own tax, financial, legal, and other advisors and only make investment decisions on the basis of the investor’s own objectives, experience, and resources.