"...the antifragile grows from disorder..."
-Nassim Nicholas Taleb, Antifragile
Austere Capital is a market-neutral, volatility arbitrage fund.
We provide exposure to Bitcoin sans directional risk -
Austere's investment strategy is specifically designed to profit from BTC price fluctuation.
Volatility Arbitrage Primer
Volatility arbitrage (vol arb) consists of betting on the intensity of market movement, rather than on direction. A long volatility position is a bet that the market will move either up or down. A short volatility position is a bet that the market will not move, or remain stagnant.
Vol Arb Trading versus Directional Trading
The main problem with directional trading, is that it's difficult to predict where the market is going (i.e. will BTC go to $6k or $60k?) as most movements are arguably irrational and go against fundamentals.
Hence the main advantage of volatility trading in irrational and illiquid markets such as the cryptocurrency realm, is that you bet on the market moving in both directions, and thus remain market-neutral.
In practice therefore, vol arb trading is a perfect hedge for a directional trading strategy.
How We Do It
Bitcoin volatility trading is in essence done via derivatives - more specifically through delta-hedged options on Bitcoin futures.
Profits are captured by re-hedging after major market movements. Knowing precisely when to re-hedge is key to realizing maximum profit.
Austere's Investment Strategy
Based on extensive analytical back-testing, the Austere team can pinpoint Bitcoin's preferred range of movement as well the likelihood of either a mean-reversion or a multiplier effect based on the speed and acceleration of changes in price.
Our proprietary model allows us to know exactly when to re-hedge and the optimal (read cheapest) time to buy into volatility.
The primary risk of vol arb trading is the market remaining stagnant (i.e. little to no movement). In this case a long volatility position using delta-hedged options on BTC futures would lose money daily as per the decreasing time value of the options, measured by the Theta. As the expiry date draws nearer the decline in time value increases exponentially.
We counter this risk by going short volatility only where appropriate in the short-term, and thereby capturing profits via the decline of the option's time value.
Market-making also ensures that we are acquiring our long volatility positions at the most advantageous price.