Summary

-&Trading Philosophy:& Our investment strategy is particularly innovative: we use to open the&position three or four weeks before the expiration day, structuring arbitrages on volatility. The&strategy earns by these arbitrages and by the time decay process every month with a low risk,&because the arbitrage is covered by long positions (through long positions on futures and put&options with expiration almost an year in the future).&The fund works on the euro zone markets through index options (mainly on Dax, Eurostoxx50, and&FTSE 100). The structured strategies cover a period of about a month, which is the technical&expiration of options.The opening of a new position at the beginning of the technical month needs a series of&studies and analytical comparisons, such as fundamental macroeconomic analysis and technical&analysis of the most important financial markets (American, European, and a few Asian markets).&In particular, we utilize the principal technical analysis theories and we use different&software. The study of the single option is done through two processes: the first verifies the&fundamental parameters (Delta, Gamma, Theta, and Vega), while the second is directed to analyze&the differences between the fair price in the market, which is calculated through our own property&software, and the price offered by the market makers.&The study of implied volatility is fundamental. During periods with high levels of volatility&(for example March 2003, August 2007) we tend to be only sellers of options. The positions in the&market will always be short on volatility and we tend to avoid buying options almost every time.&On the other hand, during periods of low volatility (for example, during all 2006) we try to combine&our short positions with long ones, to exploit both the time decay and the possible explosion of&volatility. In other words, we are short on Vega on the closest expiration, and in the meantime we&covered our positions through a property delta hedging strategy.&The complete structure of the strategy follows a philosophy that prioritizes the choices that&cause us to prefer the minimization of risk instead of the maximization of yield; we try to&equilibrate our position in order to not be too bullish or bearish. In particular, when we study our&initial position we avoid predicting the future direction of the market, but instead we tend to exploit&at maximum, the natural movement of it.These techniques perform very well in a side market, but they can also perform well in a&bearish market that is characterized by a rising volatility.&Risk Control: The key analysis of risk control is the level of capital utilization. In other words,&every initial trading strategy is opened utilizing up to 30% of the full assets of the fund. The&remaining part of the assets are kept in liquidity to be used if the markets conditions change and a&modification in the strategy has to be made.The main risk control analysis is made utilizing many types of software (also the software&distributed by the various Stock Exchanges, for example the margin calculator by Eurex); the level&of the asset utilization is central and every position is being monitored every minute.&The asset are utilized at a level of 30% at the beginning of the period and can reach a&maximum level of 50% in the worst conditions ( even if in the Offering memorandum it?s stated&that we can use up to 65% of the asset ). At those levels of margin requirements, the strategy has to&be changed in a stop loss situation.Before the structuring of every trading strategy, we make up to 50 hypothesis of different&scenarios, in terms of volatility, level of the underlines, time to expiration, and combinations of&these conditions. With these hypothesis, we calculate a way to solve almost every difficult&situations, so we can know how to proceed before things happen.&Option Strategist Asset Management places a strong emphasis on the research and&development of its trading strategies and models. Only those models that fit the fundamental&premise of the underlying trading strategy are investigated and developed. The trading models allow&for testing of hypotheses and generate understanding of market dynamics and intellectual property.&Models created are continuously tested in order to examine variability in the model's performance&over different periods and in different market conditions.The investment manager approach of conducting extensive research of a range of market&conditions, together with a high degree of diversification provides a solid foundation for the control&of risk. This together with a range of in-house risk monitoring systems ensures that risk is&effectively managed at the market and the portfolio level.&Computational analysis is fundamental to the research. Option Strategist has developed&proprietary programs capable of providing fast, robust solutions to the problem of the analysis&needed to verify the models, and has developed in-house implementations of standard statistical&methods and proprietary algorithms in order to perform these analyses.The complex nature of the models thus developed has necessitated the creation of front-end&trading software in order to allow the trader to follow the precepts of his trading strategy. All have&integrated real-time data feeds into computation modules which emulate the trading model, linked&to a user-friendly front end that informs the trader both of the current position and state of his&portfolio and of what actions need to be taken at any given time. This enables the risks associated&with each market comprising the investment portfolio, and their correlations, to be measured on a&continuous basis, thus enabling portfolio positions to be varied in accordance with changing risk&profiles associated with market movements.&