Strategic Shifts and Insights

Closure of the Sage Fund
In a bid to streamline our focus and allocate resources more effectively, we have decided to close the Sage Fund. Despite its potential to perform well during market downturns and outstrip its benchmarks, the fund has encountered challenges in maintaining its performance. The complexities inherent in managing a strategy reliant on low-probability events—compounded by statistical difficulties—have rendered continued efforts in this area unsustainable.

Performance of the Gamma Goblin
After three years in operation, the Gamma Goblin fund has achieved a total return of 30.27%, compared to its benchmark, the QQQ, which stands at 32.37%. The Gamma Goblin’s annualised return is approximately 11%, with a period information ratio of around 1.30. In contrast, the QQQ boasts an annualised return near 15% with an information ratio of 0.70. We remain confident that, in the long term, our strategy will prove its mettle, particularly given the superior risk-adjusted performance evidenced by the Gamma Goblin.

Exploration of Cryptocurrency Liquidity Pools
Our research has led us into the realm of cryptocurrency liquidity pools, where a small test case has illuminated the challenges of impermanent loss—an effect akin to being short volatility. In our trial within the ETH versus USDC pool, positioned in the 3000-3500 range, we discovered that insufficient volume in one of our pools failed to adequately cover the convexity risk. This valuable lesson will undoubtedly inform and refine our future endeavours in the crypto space.

Refocusing on Crypto Opportunities
We must acknowledge that we have, to some extent, veered off our intended course within the cryptocurrency arena. Nevertheless, this sector is replete with opportunities, and it seems we may only be at the very beginning of our journey. Notably, active market participants are already making waves: Calamos has introduced a capital-protected Bitcoin product (ticker: CBOJ), and MicroStrategy is preparing to issue a perpetual strike preferred stock under the ticker STRK. These pioneering moves highlight that innovation in the crypto space is just beginning, reinforcing our belief that a recalibrated approach could yield significant long-term benefits.

Innovations in Financial Instruments
Our exploration of new financial instruments continues to yield fascinating insights. We are currently delving into perpetual options—contracts without a set expiry that necessitate modifications to the traditional Black-Scholes pricing model. Our objective is to integrate elements such as perpetual future contracts, perpetual options, standard options, and liquidity pools into a cohesive strategy. This holistic approach aims to unlock new opportunities and enhance our overall financial performance.

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Conclusion

As we move forward, Sterling Alpha Group remains committed to learning, adapting, and innovating. The closure of the Sage Fund represents a strategic realignment, while the performance of the Gamma Goblin, our deep dive into cryptocurrency liquidity pools, and our recalibration within the crypto space underscore our commitment to sophisticated, high-potential investment strategies. We are excited about the future and confident in our ability to navigate an ever-evolving financial landscape.

Looking Ahead

In the coming months, we will continue to refine our existing strategies and explore new avenues for growth. Our emphasis remains on achieving robust, risk-adjusted returns, leveraging our learnings from recent experiences. We are particularly enthusiastic about the potential of perpetual options and the promising developments in the crypto sector. Our primary goal remains to deliver consistent, superior returns through rigorous research and innovative thinking.

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We trust that this update provides clarity on our current position and future direction. Thank you for your continued support.