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.