Leeward Portfolios are designed to head into market winds and are contrarian to general market direction. This strategy is not based on arbitrary measures like over or under priced stocks, but rather when pot odds indicate higher risk for lower reward. December of 2007 provides a perfect example when market conditions peaked and a Leeward portfolio strategy spared clients from the suffering magnitude & crippling velocity of the Crash of 2008.
Leeward Portfolio positions are smaller than a normal tranche size. Cash is deployed more sparingly and profits taken more quickly.
Windward Portfolios operate best after significant corrections, when volatility settles and positive momentum begins. 2010 offers an excellent example of optimal Windward Portfolio conditions. Within a Windward strategy, cash is utilized far more effectively as risk is curtailed and reward is exponentially higher. Positions are larger and profits are taken closer to the 50% target.
While no direction is ever certain, the continued advancement of today's market seems less probable. Current option market metrics indicate pot odds are in a Leeward favor. The S&P 500 Index (SPX) presents a mere 0.05% probability of rising 10% by DEC 2018, yet 16% probability dropping 10% by this same period.
It's important to note, Leeward and Windward Portfolios dictate macro course strategy, but just as professional sail teams jibe back & forth within each leg to find good wind, OCM also takes advantages by identifying changing wind conditions as a the measure of market volatility.
Tools like Implied Volatility Rank (IVR) , Position Delta & Theta provide us with a more calculated execution and management of each trade resulting in a higher probability of profit vs. than traditional 50-50 bets. These tools and mechanics allow us to complete over 70% of winning trades.
Contact us to request a sample allocation for a $1MM Leeward or Windward portfolio mix.