LJM Investment Products

To accommodate varied investment objectives and risk profiles of individual and institutional clients, LJM Partners offers privately managed futures accounts tailored to your investment objectives.

• Aggressive Strategy (Preferred FCMs are AACC and FCStone): Annualized profit objectives are targeted at 28-32% and greater. The Aggressive account seeks to maximize returns with the commensurate trade-off of higher volatility of returns and exposure to gap movements in the S&P 500 Index. Given the potential increased variability in short term performance the aggressive investor should have a three to five year investment timeline or longer. The trading strategy for the LJM Aggressive Strategy will include trading short options (puts and calls) on the S&P 500 Futures Index. Periodically, especially during periods of heightened volatility, LJM will also employ hedging in the form of purchasing long put and call options. The greatest risk entailed with the LJM Aggressive Strategy occurs during periods of excessive S&P 500 Index volatility, specifically large directional gap movements. The minimum investment for an individual client account traded with the LJM Aggressive Strategy is $500,000.
• Moderately Aggressive Strategy (Preferred FCMs are AACC and FCStone): Annualized profit objectives are targeted at 18-24%. Given the potential variability in short term performance the investor in the LJM Moderately Aggressive Strategy should have a two to four year investment timeline or longer. The LJM Moderately Aggressive Strategy incorporates long put hedging to reduce risk and to limit exposure to gap down movements in the underlying S&P 500 Futures Index relative to purely unhedged positions. Pricing for all instruments purchased or sold to facilitate the hedging portion of the strategy will be modeled using proprietary tools. During periods of heightened volatility, the LJM Moderately Aggressive Strategy may hedge short call exposure. The greatest risk entailed with the LJM Moderately Aggressive Strategy occurs during periods of excessive S&P 500 Index volatility, specifically large directional gap movements. Because the probability of major movements of 20% or more in the S&P 500 Index within a 30-day period is far greater for downward market movements contrasted to upward movements, the LJM Moderately Aggressive Strategy is more cautious regarding hedging major down movements contrasted to upward movements in the S&P 500 Index. While the LJM Moderately Aggressive Strategy incorporates long put hedging to reduce downside risk, it will only periodically hedge short call exposure. The minimum investment for an individual managed client account traded with the Moderately Aggressive strategy is $500,000. Click here for additional information.
• Preservation and Growth Strategy (“P&G”) (Preferred FCM is Merrill Lynch): Annualized profit objectives are targeted at 8-12% with the goal of capital preservation in down markets (including major market drawdowns) and low performance volatility in many market conditions other than when the S&P 500 Futures Index rallies more than 5% in a 30 day period. Investment timeline should be no less than two years. The trading strategy for the LJM P&G Strategy will include short puts and calls against the S&P 500 Futures Index along with long puts to hedge short put exposure (i.e. put spreads). During periods of heightened market volatility, the LJM P&G Strategy will also hedge short call exposure. Pricing for all instruments purchased or sold to facilitate the hedging portion of the strategy will be modeled using proprietary developed tools. The minimum investment for an individual client account traded with the Preservation and Growth strategy is $3 million. Click here for additional information.
• Systematic Index Volatility” Strategy (“LSIV”) (all FCMs):

  LJM has identified an inefficiency in the market of index options: That is, short dated options with high delta (Δ ~ 20-50%) are over-priced, while lower Delta options (Δ < 20%) are either fairly or under-priced. This mispricing is persistent across many volatility environments and it is present for both calls and puts. LJM research confirms that this pricing inefficiency exists when volatility is stable, when volatility is decreasing and when volatility is increasing. Further, LJM research confirms this inefficiency exists even when volatility increases at the rates experienced in September and October of 2008.

  This inefficiency arises because most market participants use reference models which are constructed assuming the underlying index dynamics can be described by a log normal random process, when in fact this is just a rough approximation. As a consequence, market participants most often use Black-Scholes (or some variation of it) to price and risk-manage these options. Professional buyers and sellers talk in terms of implied volatilities to determine the clearing price of a given option, but these implied volatilities are typically derived from imperfect reference models. These market participants include traditional option premium writers, who typically try to capture the narrow spread between implied and realized volatility.

  LJM’s observations about the market inefficiency does not depend on any particular reference model: LJM’s observations are, in fact, model independent (i.e. there is only weak reliance on Black-Scholes to determine the corresponding Deltas). These observations derive from the performance results of its 13 year track record as well from an extensive and rigorous back testing exercise using multi-year tick data, where a simple trading strategy is constructed and validated that does not depend on any standard reference model. At the same time, LJM confirms that the conclusions drawn are quite general.

  LSIV is based on extracting Alpha by systematically selling over-priced options. Such a strategy inherently assumes exposure to large, sudden and unexpected market swings. LJM research confirms that the greatest degree of mispricing (i.e. over pricing) are those with higher Deltas (i.e. closest to the money) and the more fairly (and even underpriced) options have lower Deltas (i.e. far out of the money). This means one can create a strategy where higher Delta (i.e. close to the money) options are systematically sold and options with small Delta are purchased as hedging instruments to protect the portfolio for unexpected big market swings. A fortunate outcome of these principles is that the LSIV is inherently ‘long skew”.

  The manager exploits this inefficiency by constructing the best portfolio to harvest the Alpha. This is done by generating optimal portfolios, using proprietary optimization techniques, where time decay is maximized while risk (gap, and margin risk) is minimized. Both margin risk (liquidity) and gap risk, are a form of stress testing of the portfolio, and hence are mathematically well defined functions. The best strategy to achieve a certain level of return is of course the one that takes the minimum risk, and risk is an objective mathematical function: hence the strategy is systematic. In general, stress testing is modeled based on empirical data. Assumptions are made about implied volatilities, volatility skew etc. for different scenarios based on years of academic research. This means that while stress testing can be expressed in the language of Black-Scholes, the popular reference model is by no means necessary. The Manager only uses the model as one of many tools to construct its strategies. LSIV will always be long time decay but could be long or short option premium and long or short Vega depending on market conditions. Target returns are between 15 and 20% per annum net to investors with a targeted annualized volatility at less than 10%. LSIV seeks to be market neutral and the returns are uncorrelated to the market in “normal” market conditions. In times of extreme market stress, however, correlation will be high. LSIV will trade listed S&P500 index futures and options on these futures but it is not limited just to S&P500. The Manager envisions trading other listed index futures and associated options as well at some point in the future. Trade execution will use both open outcry exchanges (for the big S&P contract) as well as electronic markets (for the e-mini contracts).

Features and Benefits of an LJM Managed Futures Account

1. No Lock Up Period
   • Clients can remove funds with a 5 business day notice.
2. Complete Account Transparency
   • Clients who open with Fortis Clearing and/or FCStone receive daily statements detailing all account trading activity.
   • Clients who open with FCStone can access account status via the Internet and the RAN (“Rolfe and Nolan”) client portal. Clients who open with Fortis Clearing can access account status via the Internet and the Oasis II service.
   • Client accounts are "marked to market" daily. Closing account values are updated daily.
3. IRS Section 1256 Tax Treatment
   • Trading activity is expected to include gain and loss from "section 1256" contracts under the Internal Revenue Code of 1986, as amended, 60% of which is treated as long term and 40% as short term gain or loss.
     
     Notice pursuant to Circular 230. Advice expressed herein as to tax matters was neither written nor intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed on a taxpayer under the Internal Revenue Code. Such advice to tax matters is being delivered in connection with the promotion or marketing (within the meaning of Circular 230) of the transactions contemplated by this material. Each taxpayer should seek advice based on its particular circumstances from an independent tax advisor.

Fees

LJM Partners is provided the following compensation for its fund management services :

• Management Fee : A 2% annualized fee is paid monthly (0.1667%) to LJM based on a client’s net liquidation value at month’s end.
  
• Incentive Fee : An incentive fee of 20% of profits is paid quarterly to LJM
  
  Please read the LJM Partners Disclosure Document for a full explanation of fees. The LJM Disclosure Document must be read in its entirety before considering an investment with LJM Partners.