C A P S T E M

Frequently Asked Questions

We are here to clarify the common questions that you might have around our service and the industry as a whole!

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Glossary

Calendar/Diagonal spreads:

Calendar/Diagonal spreads are option strategies that are spread across different expiry and maturity. In this, you have a long and short position across different legs and they usually are hedged and carry lower margin requirements.

Delta Neutral Trades:

Delta neutral trades means the strategies are not affected by big moves in the market as the different legs/positions in the strategy hedge and offset other positions.

Drawdown:

Drawdown is the reduction of one’s capital after a series of losing trades. This is normally calculated by getting the difference between a relative peak/high in capital minus a relative trough/low of the net equity curve.

Implied Volatility:

Implied Volatility (IV) measures the extent the stock can move over the next year in a 1SD (Standard Deviation) move. The higher IV implies higher the range and probability of a price far away being possible in near future.

Margin Trading:

Margin trading is a way of trading by availing funds by pledging existing assets with a broker/lender. Margin accounts allow traders to access greater sums of capital, allowing them to leverage their positions.

Slippage:

Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. This happens due to many factors like prevailing volatility, liquidity or news events.

Vega Explosion/Crush:

Markets have regimes and they oscillate between low and high volatility periods. Whenever there is a regime change and market oscillate, there is either Explosion/Increase or Decay/Crush of Volatility.

Questions

It will all depends on the investment plan we arrive at for you as well as what Risk Profile you are categorized in. But to put things in perspective, we might look at

SEBI mandates no return promises and hence we cannot guarantee a return. What we do is have a hurdle rate. Hurdle rate is the return the funds would have made in a risk-free investment or the opportunity cost. It stands at 6% for us. If we make a return more than 6%, we will charge a performance fee.

Each trade is designed to have a Risk Reward of >1.5 and a maximum possible loss of 5-10K initially which is 1-2% of your capital or margin. Higher risk trades are taken once sufficient surplus is built.

Even though your Risk Profile might be RP1 to RP5, we will mostly start with RP1 trades for everyone and based on account surplus, we will start moving up the risk ladder. Also, once a drawdown happens, we will lower the risk and recover the loss before moving up again.

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