In May 2010, CBCM developed a proprietary option pricing model. The Advisor believes this "Straight Line Time" option pricing model to be more useful than Black-Scholes in determining the true time decay value of options. It is the opinion of CBCM that the Straight Line Time ("SLT") model identifies the optimal exit points at which open trade positions should be closed.
In December 2011, CBCM put in place a trailing profit stop policy. This enhanced risk parameter has increased the frequency with which the BVP program trades. CBCM believes this adjustment has led to smaller drawdowns and increased per trade profitability, in a market environment that would typically be a challenge for the profit (steadily up-trending without pullbacks).
Trade positions are placed (using proprietary strike level and ratio algorithms) to achieve a strategy that can be profitable in flat or volatile market conditions. Profit is made through the expansion of the spreadï¿½s "Theta Differential." This creates a position that can make profit from time decay and underlying market moves. The primary risk controls for the BVP are stop limits (which are derived as a function of account value) and real-time monitoring of positions. Furthermore, the BVP only participates in high liquidity markets (currently the S&P 500 futures Put option contracts).
CBCM regularly evaluates its trading methodology and retains the discretion to revise any method or strategy, including the technical trading factors used, the commodity interests traded, and/or the money management principles applied. Such revisions, unless deemed material, will not be made known to clients.