Dear Partners,
Reflecting on September’s trading, it is evident that we navigated a challenging yet successful month. The market offered its fair share of turbulence, with concerns about interest rates, geopolitical events, and persistent volatility. However, we ended the month in a strong position through disciplined strategy adjustments and strict adherence to our trading rules.
Portfolio Overview
Our portfolio saw significant growth in September, with profits totaling $237,540.50 for the month and $371,471.00 year-to-date. While the market threw us a few curveballs, including periods of heightened volatility and unpredictable market moves, we remained steadfast in managing risk and finding opportunities.
Throughout the month, we emphasized risk management, adjusting positions as necessary while remaining focused on our long-term objectives. The portfolio remains predominantly bullish, but we are continuously prepared to adjust positions should market sentiment shift. Our flexibility is the key to weathering uncertainty.
Key Takeaways from September
During the month, we focused on several key strategies:
- Tightening Risk Management: Volatility was a persistent theme in September. Futures volatility spiked above 70%, adding a layer of complexity to our trades. However, through diligent monitoring and pre-emptive adjustments, we were able to mitigate significant risk. One of the highlights was rolling longer-dated trades into shorter DTEs (days-to-expiration), which helped us free up valuable buying power (BP). While we successfully executed these rolls, the heightened volatility reminded us of the potential pitfalls when shortening DTE too aggressively. It’s a balancing act we’re refining as we go.
- Buying Power and Overtrading Awareness: One of the most critical lessons from September was recognizing how the mark-to-market nature of futures and futures options can impact BP. With frequent fluctuations in BP throughout the trading day, we sometimes mistook short-term BP releases as fully available capital, leading to overtrading. By the end of the month, we established a new internal policy to limit the number of open trades and ensure our BP stays above a predefined threshold. As of October, new trades will only be opened if BP is above $30,000 and fewer than 35 trades are open.
- Cash Reserves for Stability: As Warren Buffett famously said, “Cash is to a business as oxygen is to a body; never thought about when it is present, the only thing in mind when it is absent.” After several BP squeezes, margin calls, and volatility spikes, we have reinforced our commitment to building a solid cash reserve. Our cash reserve goal for October is $35,000, with a longer-term target of $77,000. This reserve will act as a buffer to absorb unexpected shocks and maintain trading and fund management flexibility. This strategy will help prevent any future margin-related pressures.
- Performance Under Pressure: Despite the market’s erratic movements, most trades performed well, and we closed September with significant gains. Throughout the month, our risk remained well-managed, and while a few positions required adjustments, there were no significant losses to report. The adjustments we made delivered $2,400 in credits in the month’s final days, contributing to our overall success.
Looking Ahead
As we enter October, we carefully watch several key economic indicators, including labor market reports and global geopolitical events. While September saw fears of potential hard landings, the data on jobs and economic growth support the case for a robust market. We are cautiously optimistic and expect continued bullish momentum as the year draws closer. However, we will remain diligent in adjusting trades should market conditions change.
Closing Thoughts
September provided us with valuable lessons in discipline and risk management. We navigated the challenges by adhering to our trading plan and adjusting positions thoughtfully. Our team is confident that these actions have placed us in a stronger position. However, we are still experiencing a cash crunch due to volatility exceeding the 55% threshold. This cash crunch puts hardships on our payouts that will force us to reduce or suspend payments if not resolved next month.
At ZZ Capital Management, LLC, we are committed to transparency and professionalism in managing our investors’ capital. We are dedicated to building wealth sustainably, focusing on long-term value and mitigating short-term risks.
Thank you for your continued trust and partnership. Feel free to reach out if you have any questions about our performance or strategies. We are always happy to provide insight into our process.
With regards,
Martin Zourek
Managing Director,
ZZ Capital Management, LLC
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