Trader Matt Busigin Asks about the Risk Profile of Our Algorithmic Trading Portfolio

Written by Michael Bigger. Follow me on Twitter.

Matt (@mbusigin) asks, “Do you run a delta-neutral book? Is there a long for every short? Do you manually adjust your exposure to the ‘risk trade’?”

 

Our answers: 

 

1. We run a delta-neutral book -10 percent to +5 percent of net exposure. Right now, we run it at -8 percent (it has something to do with correlation). Our long position is 100 percent of capital balanced by a similar amount of aggregate short positions. Our gross exposure is about 200 percent of invested capital. 

 

2. No. The number of individual long and short positions is not equal. 

 

3. We do electronically hedge the aggregate residual “risk trade” exposure.

 

 

We hope these answers help you understand how we shape the risk profile of our algorithmic portfolio. Keep the questions coming!

 

Comments

[Joshua Chance]

Hi Michael,

I'm wondering if you can elaborate on your algorithmic trading (obviously without the proprietary stuff, glittering generalities will do). I remember you mentioning a few times that you prefer to make an investment once every five years or so. Should I interpret this as investments being different from some more frequent algo-style strategies? Or you fundamentally pick long-term sticks and unleash your algos on them (I find this unlikely but it would be interesting)? Or something else? Thanks.

[Michael Bigger]

Hi Joshua.

These are two different portfolios. In the investment portfolio, our goal is to make one investment per 3 to 5 years. In the algorithmic portfolio, it is a a trading portfolio with really high turnover. That is the reason the blog has two sections to it: Algorithmic and Investment. Check the tabs on the side of the page.

Michael