The Arin’s VegaEx Strategy (“VegaEx”) is an actively managed, market-neutral, opportunistic investment program optimizing various volatility arbitrage style trading strategies. VegaEx seeks to exploit relative levels of implied volatility within a given security, between two securities, or between a security or group of securities and an index. VegaEx net exposures may leave accounts exposed to equity market moves and changes in the overall level of equity market volatility. Dynamic hedges and risk-defined option trade structures are sometimes used to reduce the directional risk of extreme market moving events. VegaEx is typically appropriate for investors seeking additional sources of excess return, i.e. alpha that are unrelated to equity market valuations with higher levels of account variation than fully hedged options’ strategies. VegaEx seeks to achieve its investment objective by utilizing various long and short trading techniques with a portfolio of options, common stocks, exchange traded funds (“ETFs”), futures, index related instruments, and short-term instruments.

In selecting the options that VegaEx will trade, Arin first identifies exchange-traded options with a trading volume sufficient to preclude VegaEx’s trades from negatively influencing prices. Arin then evaluates the available investment opportunities and uses True Vol (Arin’s proprietary pricing algorithm) to assist in determining when to buy and sell options. Arin traders may also create hedges, primarily utilizing options, common stocks, futures, and ETFs, in an attempt to offset the risk of extreme price movements in the securities underlying the traded options. Such price movements affect the ability of Arin to implement successfully VegaEx’s investment strategy. Arin seeks to maintain exposure levels that may or may not be neutral to equity market movements and volatility levels. VegaEx principally involves trading options based on market changes in the implied volatility of each contract. The time to expiration, presumed dividend payments, level of interest rates, expected return volatility of the underlying/referenced asset during the contract period primarily determine an option contract’s price or premium. Arin’s VegaEx attempts to take advantage of differences between the market’s level of implied volatility and that pricing as calculated through Arin’s True Vol pricing tool. By analyzing the implied/forecasted volatilities of a security, and comparing the resulting price to the implied/forecasted volatilities of a historically correlated security, Arin’s True Vol attempts to identify situations where an option on one security is relatively undervalued and an option on the other security is relatively overvalued.

The market price of an option is partially based on the expected volatility, or potential variation in price over time, of its underlying asset. Arin’s VegaEx attempts to take advantage of differences between the volatility implied by one option’s price and that of another option or of the underlying asset. By analyzing the implied/forecasted volatilities of a security, and comparing them to the implied/forecasted volatilities of a historically correlated security, Arin attempts to identify situations where an option on one security is relatively undervalued and an option on the other security is relatively overvalued. VegaEx then takes a long position in the undervalued option and a short position in the overvalued option. Examples of correlated securities include, but are not limited to, stocks issued by companies in the same industry, a stock and an ETF based on a securities index that includes the stock, and ETFs based on indexes that tend to move in the same direction at the same time. Arin will employ different variations of this trading strategy, as well as other comparable trading strategies, that seek to exploit perceived pricing discrepancies in the options’ market.

Arin also allocates a portion of VegaEx’s capital to short-term instruments of investment grade quality, including money-market instruments and money-market mutual funds, when Arin believes the options’ markets offer limited investment opportunities. VegaEx may hold short-term instruments for an extended period while waiting for offer attractive investment opportunities. Our fee for VegaEx is 150 basis points or 1.50% per annum plus a 15% (fifteen percent) performance based fee for qualifying accounts.