Crypto Money Fund Dollar Hedge II (“CMFDH II”) Strategy

The CMFDH II strategy is multifaceted, focusing on a mix of carry trade, covered calls, and the newly introduced "butterfly" strategy:

1. Carry Trade and Covered Calls: The fund primarily employs the carry trade and covered call options. Two-thirds of the capital is in dollar-insured contango, ensuring dollar-defined capital preservation at the quarter's end. The carry trade, with an estimated annual volatility of 20% per unit, involves profiting from interest rate differentials between two currencies. Covered calls, with about 40% annual volatility per unit, involve holding an asset while selling call options on it, less volatile than direct Bitcoin investment (50-70% volatility). Generally, two units of carry trade are maintained to one unit of covered call, targeting a 25% annual portfolio volatility with an expected sharpe ratio of 1.5.

2. Contango Strategy and Treasury Yields: A key component of this strategy is monitoring contango yields. If these yields approach or fall below the 90-day Treasury yields, the strategy may shift to cash or cash equivalents. This approach is part of risk management and capital preservation.

3. Butterfly Strategy: The hedge fund is introducing a third strategy, the "butterfly" strategy. For more details, see Levenstein.net. We developed an automated trading program focusing on complex options and crypto derivatives, and we plan to extend its focus to other areas like listed stocks and index options. This strategy is tailored to handle unpredictable market scenarios, including "black swan" events, offering special opportunities.

Overall, the hedge fund's strategy is dynamic, blending traditional investment methods with innovative automated systems to manage risk and capitalize on market opportunities.