The Typhoon Options Fund is a British Virgin Islands-domiciled private neutral fund that was soft-launched in August last year. With £2.5m in assets under management – £2m came from a single institutional investor on 1 January – Fundamental is now bringing the fund, managed by Andrew Chak, to a wider audience.
Stephen Drabwell, a director at Fundamental AM describes Chak’s strategy as “selling short strangles” where he buys and sells options, taking out of the money short positions in puts and calls, based on the level of the FTSE 100. These are European-style options, which means the positions are placed on the third Friday of each month though they can be traded daily.
He explained that the fund aims to capture the premium either side of the market, currently the FTSE 100 but he did not rule out future launches using other indices depending on liquidity limits of the current offering. Chak is comfortable with up to £100m in the FTSE options fund.
The ideal conditions for the strategy, according to Drabwell, are a directional market with a degree of volatility. If the market is flat, the spread between the puts and the calls is necessarily that much tighter with the inherent risk that the market suddenly spikes or troughs.
The fund makes a 1.5% annual management charge with a 5% initial charge as well as a 20% performance fee based on a hurdle rate of Libor. It is available in sterling, euro and dollar share classes.
Drabwell expects the Typhoon Options Fund to be added to offshore platforms.
