Richard Scalone explains how options allow for a myriad of trade management opportunities that outweigh the benefits of outright directional positions.
Richard Scalone explains how options allow for a myriad of trade management opportunities that outweigh the benefits of outright directional positions.
HW: What is the background to your fund?
RS: Integra Master Fund, a Global Macro fund, was launched in June 1999. The Principles are Richard Scalone (myself) Managing Director/ Pres / Head Portfolio Mgr and Keith Lasota – Sr. VP / CAO . Current AUM is in excess of USD 700 million.
HW: Who are your service providers?
RS: Accountant: Kaufman & Rossin; Attorney: Andrews & Kurth L.L.P.; Administrator: Kaufman and Rossin Fund Services; Prime Brokers: UBS Financial Services and ABN-AMRO Global Futures.
HW: What is your investment profile? What is the profile of your current and targeted client base?
RS: Our investment profile is 90% G-7 currency pairings / 10% US fixed income.
Our client base is as follows: 17% Family Office / High Net Worth; 17% Bank; 36% Fund of Funds; 15% Endowments; 11% Pensions; 4% Institutional.
HW: What is the investment process of your funds?
RS: Integra adheres to a three step process: 1) Fundamental Analysis; 2) Technical Analysis, and 3) Market Position Analysis.
The investment methodology starts with a fundamental view that is derived from diligent analysis. This fundamental view is then put through our technical analysis whereupon a confirmation or rejection of the trade idea is determined. If confirmed, an assessment of market position is made as the final factor in determining whether a trade should be established. It should be pointed out that if any one of the three factors can not support the others no position is established.
After all analysis supports our view the second stage of the investment process begins. As Integra expresses the majority of its trade ideas through the use of options, how the trade is expressed is equally as important as the view itself. The use of options helps both in risk management and trade expression. Integra utilizes a tedious analysis of history as well as any forthcoming influencing factors that could affect the market to decide option strikes, tenure, and how much capital to extend for each position.
HW: How do you generate ideas for your funds?
RS: Ideas are a result of the above three-step methodology; using daily, weekly, monthly releases and research reports, and of course news. Traditional charting methods, Fibonacci, Elliot Wave, RSI, Stochastic, bar charting …etc. Proprietary analysis and an assessment of market position of our view. application of IMM Commitment reports, and other trusted Market sources, all combine to solidify our views. All these together predicate the execution of any investment initiative.
HW: What is your approach to managing risk?
RS: Integra implements all views through vanilla call or put spreads via options, expending set premiums to mitigate risk. Once a position is established, Integra manages the overall net exposure by trading the deltas of the positions with the underlying instrument on an intra-day basis. The fund utilizes stringent stop loss and limit orders on the delta trading of all existing positions. These orders are monitored and adjusted by our fully staffed 24 hour desk. Integra also runs a propriety model which illustrates our risk based on various standard deviation movements.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
RS: The goals of the fund are to produce consistent, absolute returns in the 11-15% range with a low correlation to any specific market sector with low volatility. We do not expect our performance or style to change going forward.
HW: What opportunities are you looking at right now?
RS: We are currently looking at higher volatility.
HW: What events do you expect to see in your sector in the year ahead?
RS: We expect the US dollar to weaken and lower US rates.
HW: How will these changes/future events impact on your own portfolio?
RS: These changes will positively affect us as we have positioned our book as such.
HW: What differentiates you from other managers in your sector?
RS: Integra’s edge lies in the trade expression itself. 100% of Integra’s longer-term positions are expressed through options. This allows for larger positions to be implemented using less capital. Options allow Integra the staying power to maintain a view in an entity that might not be able to be achieved in an outright directional view due to ‘normal’ price fluctuations. The many different aspects of options also allow for a myriad of trade management opportunities that, once again, outweigh the benefits of outright directional positions.
HW: Do you have any plans for similar/other product launches in the near future?
RS: Yes. In the near future we plan to launch a FX only product, a levered product and an equity long/ short product.
