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Options Alpha

Photo by joshua patrick on Unsplash

Optimize Advisors takes earnings signals from the options market 

 

ETF newcomer Optimize Advisors has launched an actively managed that seeks to exploit price discrepancies between options and stocks that occur during corporate events, especially earnings season.  

 

The ETF Optimize AI Smart Sentiment Event-Driven ETF (OAIE) will buy 10 – 30 large cap US stocks with “attractive” upcoming event opportunities, the prospectus says. The fund uses proprietary software to study the options market and identify stocks that the options market suggests have been mispriced, potentially due to flawed earnings expectations.  


When there are no attractive events on the horizon, the fund sits tight holding total market equity ETFs like SPY, the prospectus says.

 

The fund charges 1%.  


 

Bernie’s commentary – if it’s real, why share it? 

I think the GameStop saga – and Robinhood – did a bit too much to popularise the idea that options trading is easy money. Personally, I’ve never traded options. I only have a handful of friends who’ve traded options in their own retail brokerage accounts. (And I think that’s for the better). But I know that as with any financial market, options are competitive and cutthroat. Any errors or mispricings get erased very quickly.  

 

In this setting, anyone that has better tech or data, which enables them to trade faster or more accurately, is unlikely to share their advantage. In trading technology, if you’ve got something good, you keep it to yourself. Just look at Renaissance Technologies. Only the founders and top employees have permission to invest in its medallion fund.  

 

So I guess the central question here is: if this ETF has found a way to peel alpha from the options market through superior tech, why would they share it? Why not just take all the cream for yourself? 

 

Adding to this is the fund’s lack of any benchmark or clear performance reporting. The prospectus says only that the ETF is trying to achieve a total return. Benchmarking events driven trading strategies is harder, sure. But as the ETF is long-only, it’s not impossible. And again, if you're an alpha harvesting machine, surely you can easily find a benchmark to boast of beating? 

 

I’ll be interested to revisit this in 12 months time.  

 

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Bernie Thurston

Bernie Thurston is the founder and CEO of Ultumus, a leading provider of ETF and index data, calculation, and workflow solutions. With over 20 years of experience in financial technology, Bernie has been at the forefront of index and ETF innovation since 2003.

His finance career began at Markit, where as Managing Director for Equities he designed and developed products for index and ETF composition and dividend forecasting from 2003 to 2011. He then founded and led DeltaOne Solutions as Managing Director, building it into a global provider of index and ETF trading data and technology services. The company managed over 100,000 multi-asset class products before being acquired by Markit in 2015.

Following the acquisition, while working for an ETF issuer, Bernie identified fundamental issues in how index and ETF data was represented across the industry. This led him to found Ultumus in 2016, building solutions for ETF primary market operations. Under his leadership, Ultumus has grown into a market leader serving major financial institutions globally, with its ETF Order Management System (OMS) supporting create and redeem workflows worldwide and its PCF platform calculating and distributing portfolio composition files for ETF issuers across every major market.

Bernie sold Ultumus to SIX Group in 2021, where it continues to expand across Europe, North America, and Asia-Pacific. Known for building lasting teams and leveraging cutting-edge technology, Bernie is focused on establishing Ultumus as the backbone of the global index and ETF industry through standardisation and automation.

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