Dear Investors, Partners, and Friends,
Our strategies performed as we expect them to throughout the month of August as the market digested news of the Delta variant, the Taliban regime in Afghanistan, and further spending protocols from our Federal Government. With this being August and now September we should be wrapping up the sleepy summer markets and expect a more reactionary market into the fall and winter. We still believe the catalyst for a change in the profile of this market will be the Federal Reserve. The Fed has been clear that it will begin tapering and the time frame is becoming more certain. Stocks have become quite richly valued at this point and the reflation trade may have already reached its peak. This can be observed when looking at the small-cap performance which has been sideways for months as money flows into growth stocks. The general market behavior is becoming more dependent on just a few household names rather than a broad advance across the majority of the publicly traded companies.
At Hyperion, we prefer an environment with higher volatility than we have seen in the most recent months. Option premiums become much more attractive and our directional spreads have a higher probability of success. In addition, the Volatility Capture strategy which has been dormant for most of the year has a chance to become relevant again.
During the month of August, our Volatility Capture strategy was activated and then closed three separate times as the market hinted at volatility and then decided against it. Of the other strategies, the Directional Spread strategy produced small profits every 48-hour option expiration cycle throughout the month. The Tactical strategy did its best to profit from the call and put side but was limited by the lack of volatility in the market.
Perhaps the headwinds to the market mentioned above are seen as reasons for the Fed to stay accommodative as they have been for the last 18 months. Hence the “Bad news is good news” mantra of market participants. In the meantime, we continue to plug away and look to achieve positive, uncorrelated returns in any market environment.
As always thank you for supporting the Hyperion Fund and entrusting us with your investment capital. If you would like to learn more or have any questions, please feel free to reach out via the contact information below.