VRP AI
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Signal Only allows you to trade signals you receive in your own account without linking an external broker. This is the easiest to setup as no external broker is required. When you are ready to take advantage of fully automated trading you can upgrade at any time.
Subscription
When you subscribe to strategies you will receive Trade Signals that give you the information to properly execute the trade entries and when trade exits are required, you will also receive an exit signal as well.
The subscription price you see is for the interval (monthly,yearly etc...) chosen as a flat fee. We DO NOT charge per contract fees or fees for profits. You pay a single subscription fee and trade how you like with as many contracts as you like.
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$-277
Hypothetical YTD return of $3,900
as of 03/31/2023
*Note that we DO NOT reinvest profits when calculating performance
Core Strategy
Instruments
- Ticker
- SPX
- Options Chain
- SPX
- Root Ticker
- SPXW
Whitepaper
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Description
VRP AI is one of Moneza's core trading strategies. It is a VRP SKEW extraction strategy that trades only in SPX weekly options. VRP AI uses artificial intelligence to predict and produce advantages by identifying volatility patterns and learning from recent history. The artificial intelligence powering VRP AI is trained every 3 to 6 months and uses the most recent 3-month history to evaluate and optimize performance. This strategy is unique in the market as we use data analytics to predict volatility instead of predicting the directional nature of the stock market itself.
Objective
Leverage proprietary deep learning algorithms to assess the bullish or bearish-ness of the most mispriced trades and optimize for maximum edge
Funds and Holding
- Cost per contract
- $250
- Minimum investment required per contract
- $3,900
- Maximum drawdown per contract
- $2,000 (51.28%)
- Holding time per contract
- Variable, maximum 3 days
Information
- These are binary trades that trade multiple times per week, in which each individual trade can double or lose its entire contract amount. There are no stops in between
Performance
Units in Thousands USD
Units in Thousands USD
| Duration | VRP AI | SPX |
|---|---|---|
| 2017 - 2023 YTD | 454% | 82% |
| TTM | 34% | -10% |
The performance data shown represent past performance, which is not a guarantee of future results. Returns and principal value will fluctuate so that positions, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited.
Technology
What is VRP?
The Variance Risk Premium (VRP) is the premium in price paid by market participants to hedge against variations in future realized volatilities. In other words, it’s the price paid by participants to gauge market sentiment about uncertainty.
It is the difference between future variance (implied by the option price) and the actual variance realized overtime. And while this is a valuable tool to appraise the uncertainty about future variations in stock returns (including during extreme events), this is often mispriced as it does not always take into proper consideration every critical factor involved in decisions made by participants. As a result, we can design strategies to take advantage of these opportunities.
Monetizing the VRP
In essence, a money-making strategy just needs to sell the implied 30-day variance of the SPX while buying the SPX realized for the same period collecting the difference. If only we could find an instrument to do this...
Why the SPX and not the SPY?
Option To Expire
- SPX is a European Style Option vs SPY being an American Style Option. This means that SPX is cash-settled at the expiration date, so it cannot be exercised prior to expiration as SPY can. Trading on SPX options will save you from all closing commission costs as you will not need to close your position. Instead, you can let your options expire into cash if you win the binary trade.
Larger Contract Size
- SPX contracts are 10x larger than SPY contracts which can lead to lower commission costs depending on how your commissions are charged.
Better Tax Benefits
- Lastly, there are major differences in tax treatment between the two option types. Many investors believe SPX options offer tax advantages due to how the IRS treats SPY options versus SPX options.
- Investors are usually allowed 60% of the profits from trade when using SPX options- treated as long-term capital gains, no matter how long you held them even if it’s for 1 day. SPX options receive these advantages because the IRS gives SPX options special treatment (Section 1256).
- We caution that although the SPX can seem like the better option from a tax standpoint, the tax implications in their treatment may not be significant enough to guarantee an advantage. Please be sure to check with your CPA as we do not provide tax advice and tax rules can and do change.
Exploiting Market Inefficiencies
- Structural Inefficiences
- The world today operates in a computer-based financial market which uses stochastic mathematical models.
- Sources of Inefficiences
- Transactions within markets are coordinated by market makers who care most about the spread between the bidding and asking prices and much less so about the exact price itself. This results in frequent mispricing.
- VRP Mispricing Creates Edge
- As options dealers hedge their positions to eliminate directional risk, they create an exchange of risk (directional vs. variance) and as option prices depend mostly on the expected variance of the underlying asset, this results in observable and persistent overpricing of variance in the option (e.g., the SPX). Therefore, our strategies are focused on collecting the variance risk premium
How it works for VRP AI Strategy
Moneza uses deep learning - Convolutional Neural Networks (CNNs), Deep Reinforcement Learning (DRL) and Long Short-Term Memory Networks (LSTM) to increase its edge by predicting standard deviation and mean of closing SPX prices in 1- and 5-day sessions. The same principles can be applied to raw market data to determine whether to buy or sell binary spreads.
Convolutional Neural Networks (CNN)
Convolutional Neural Networks (CNN) are series of algorithms that work to identify underlying relationships in complex datasets. In other words, it’s a computerized method to mimic the functionality of the human brain. In our case, this is used to analyze market movements.
Deep Reinforcement Learning (DRL)
Deep Reinforcement Learning (DRL) essentially helps these algorithms learn how to achieve complex objectives.
Long Short-Term Memory Networks (LSTM)
Long Short-Term Memory Networks then helps by allowing previously viewed information to persist. This is like watching a movie while remembering what transpired in the previous scene or reading a book while knowing what happened in the previous chapter.
Together, our technology leverages these systems to analyze the market and extract key insights needed to execute our strategy. In doing so, we developed Ultra, a family of proprietary convolutional nets which we use to extract variance risk premiums more efficiently with increased win rates while reducing maximum drawdowns.
Recent Trade
as of 02/14/2023
Recent trades are for informational purposes and show the most recent closed trade a subscriber to VRP AI would have executed by subscribing to this strategy and allowing Maika to execute in your broker account.
Feb01 4080/4075 Bear Put
- Action
- BUY
- Open
- 01/27/2023
- Close
- 02/14/2023
- Average Price
- $254
$85
Profit
+33%
ROM
Feb02 4020/4015 Bear Put
- Action
- BUY
- Open
- 01/30/2023
- Close
- 02/14/2023
- Average Price
- $235
$-235
Profit
-100%
ROM
Feb03 4090/4085 Bear Put
- Action
- BUY
- Open
- 01/31/2023
- Close
- 02/14/2023
- Average Price
- $260
$240
Profit
+92%
ROM
Feb13 4120/4115 Bull Call
- Action
- BUY
- Open
- 02/13/2023
- Close
- 02/14/2023
- Average Price
- $250
$250
Profit
+100%
ROM
Jan31 4065/4060 Bear Put
- Action
- BUY
- Open
- 01/26/2023
- Close
- 02/14/2023
- Average Price
- $254
$-255
Profit
-100%
ROM
Jan30 4025/4020 Bear Put
- Action
- BUY
- Open
- 01/25/2023
- Close
- 01/31/2023
- Average Price
- $255
$245
Profit
+96%
ROM
Jan27 4035/4030 Bear Put
- Action
- BUY
- Open
- 01/24/2023
- Close
- 01/28/2023
- Average Price
- $255
$-255
Profit
-99%
ROM
Jan26 4025/4020 Bear Put
- Action
- BUY
- Open
- 01/23/2023
- Close
- 01/27/2023
- Average Price
- $255
$-255
Profit
-99%
ROM
Jan25 3975/3970 Bull Call
- Action
- BUY
- Open
- 01/20/2023
- Close
- 01/26/2023
- Average Price
- $260
$239
Profit
+92%
ROM
Jan24 3910/3905 Bull Call
- Action
- BUY
- Open
- 01/19/2023
- Close
- 01/25/2023
- Average Price
- $260
$240
Profit
+92%
ROM
| Name | Action | Open | Close | Average Price | Profit | ROM |
|---|---|---|---|---|---|---|
| Feb01 4080/4075 Bear Put | BUY | 01/27/2023 | 02/14/2023 | $254 | $85 | +33% |
| Feb02 4020/4015 Bear Put | BUY | 01/30/2023 | 02/14/2023 | $235 | $-235 | -100% |
| Feb03 4090/4085 Bear Put | BUY | 01/31/2023 | 02/14/2023 | $260 | $240 | +92% |
| Feb13 4120/4115 Bull Call | BUY | 02/13/2023 | 02/14/2023 | $250 | $250 | +100% |
| Jan31 4065/4060 Bear Put | BUY | 01/26/2023 | 02/14/2023 | $254 | $-255 | -100% |
| Jan30 4025/4020 Bear Put | BUY | 01/25/2023 | 01/31/2023 | $255 | $245 | +96% |
| Jan27 4035/4030 Bear Put | BUY | 01/24/2023 | 01/28/2023 | $255 | $-255 | -99% |
| Jan26 4025/4020 Bear Put | BUY | 01/23/2023 | 01/27/2023 | $255 | $-255 | -99% |
| Jan25 3975/3970 Bull Call | BUY | 01/20/2023 | 01/26/2023 | $260 | $239 | +92% |
| Jan24 3910/3905 Bull Call | BUY | 01/19/2023 | 01/25/2023 | $260 | $240 | +92% |