The Safer Approach to Consistently Higher Returns
FAQs - Frequently Asked Questions
What is a Hedge Fund?
A hedge fund is merely an alternative investment fund that does not meet the definition of a stock or mutual fund under state and federal regulations (Investment Company Act of 1933). The Securities and Exchange Commission recognizes hedge funds as registered and fiduciary entities that operate under their own rules. UZZ Fund complies with these regulations within NC and at the US federal level. The UZZ fund primarily trades credit spreads in QQQ, SPY, IWM, TLT and VXX on a weekly basis.
What is a credit spread?
A credit spread is a type of options trade where a higher priced option is sold and a lower priced option is purchased for the same options period and stock symbol. The aim of such a trade is to collect options time premium (the credit) at trade open and then, if the trade expires worthless at the end of the period, the Fund keeps all of that credit. For example, let's say SPY is BULLISH and we can sell a 187.5/186.5 PUT spread for 0.08 a share on Tuesday July 2, 2019. As long as SPY remains above 187.5 through the end of day on Friday July 5, the fund retains that 0.08 credit. These credits are the source of gains and profits in the UZZ Fund.
How does a Credit Spread Trade compare to a normal stock trade?
Using the previous example, if we had bought shares of SPY instead (using the same capital allocation, say, of $10,000) we would have purchased 33 shares at 296.3 on Tuesday and sold SPY for 298.3 on Friday for a gain of $66. The credit spread trade will be $10,000 times 0.08 which is $800 received at trade open.
Why does the UZZ Fund focus primarily on credit spreads?
Per the previous examples, we use credit spreads because the results in clear BULLISH or BEARISH conditions are more likely profitable than trading stocks or ETFs directly. Since we know that premium on a credit spread will be $0 at expiration, all we need to do to make money is to insure that the underlying stock (SPY for example) stays above the spread strike price in BULLISH patterns and below the spread strike price in BEARISH patterns. And because option pricing allows for greater leverage, we can make increased profit per trade.
How does the UZZ Fund reduce risk?
The above examples make options in general, and credit spreads specifically, look like a no lose proposition. However, careful trade selection and knowing when not to trade are key to enabling credit spread trades to have a high likelihood of success. The UZZ Fund utilizes an algorithmic approach to trade timing, selection and trade adjustment rules to maximize the chance of successful trades and minimize risky trades. For example, the UZZ Fund uses a technical chart filter to detect when consistent and likely sustainable BULLISH or BEARISH conditions exist on any of our trading symbols. We also limit trades to three days duration to better insure that those sustainable conditions will not be affected by other market, economic, or political variables. Finally, there are weeks in which no trades will take place because historical patterns show them to be vulnerable to drastic changes in pricing (FOMC meeting weeks for example).
What are the minimum investment and related requirements of the Fund?
The minimum investment is $5,000 and there is a 5% redemption fee for any withdrawals within the first year. The fund is limited to fifteen shareholders and a maximum net asset value of $1,000,000 in order to meet the limited paperwork standard for alternative investment funds under NC and SEC rules. Please request a prospectus for all of the details.
How is the UZZ Fund operated?
UZZ Fund LLC is a North Carolina fiduciary entity registered as a C-Corp for tax purposes. All shareholder funds are maintained by UZZ Fund LLC in a TD Ameritrade brokerage account or Wells Fargo checking for transit purposes. UZZ Fund LLC pays all commissions, trading fees, and any other costs associated with the trading and management of shareholder funds. The Fund pays all applicable taxes on retained gains on behalf of its shareholders. The Fund pays no dividends or distributions to shareholders on an interim basis. The Fund issues 1099-Bs to shareholders for any withdrawals made from the fund, in line with normal investment reporting practices.
In addition, UZZ Fund LLC has a contract with Transform Services LLC ("Manager") under which the Fund pays management fees for weekly trade selection and operations, Fund shareholder reporting and Fund shareholder management. Management fees are paid by the Fund to the Manager quarterly as a percentage of total net asset value. The Manager maintains a High Water Mark on shareholder net asset value to protect shareholder value in instances where payment of management fees would result in quarterly performance gains that are below a twenty percent rolling annual rate. The Manager also insures a minimum twenty percent annual performance (by rolling quarter) for shareholders by returning accrued management fees to the Fund in cases where that performance is less than twenty percent. Please request a prospectus for all of the details.
For more information on how the Fund works, please see Methodology for more details.
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