QuantScape manages Client accounts according to its proprietary U.S. Equity Index trading program. The program uses statistical analysis of a select group of broad-based equity indices to determine the bias, directional or stationary, of those equity indices. The identified bias can be an upward trend, a downward trend, a stationary trend, or no discernible bias. Additional analysis is then conducted to determine the strength of the bias and the level of confidence in the bias prediction. Finally, macroeconomic factors and market sentiment are considered, and positions are initiated via the trading of equity index futures or futures options.
Once QuantScape determines a tradable bias for a particular equity index, it then uses futures and/or futures options to structure a trade intended to maximize the returns for the level of risk it deems acceptable.
In executing the program, QuantScape may buy or sell futures on the equity indices. It may also initiate and adjust positions by buying or selling options on the futures. Options on futures that may be traded can be either call options or put options. In addition, the QuantScape may sell uncovered put or call options to effect the strategy. During periods of large, single directional
moves in the markets, uncovered option selling may result in substantial losses for the Client. Trading futures and futures options involves the use of significant margin, with the attendant risks.