The SGI Automatic Roll Trading Strangles (ARTS) aims to capture the spread between implied and realized volatility observed on 10-year EUR swap rate by rolling short positions in 1-month swaption strangles.
The strategy consists in selling 1-month Strangles on 10Y EUR Swap rate on a systematic basis with the following strike details:
Sale of a 1-month payer swaption on 10Y EUR Swap rate, strike at-the-money forward +25 bps
Sale of a 1-month receiver swaption on 10Y EUR Swap rate, strike at-the-money forward -25 bps
Everyday 1/20 of the nominal is sold for a fixed maturity of 1 month and the leverage will be maintained at the level of 10 x on a daily basis. Each option is carried until the Expiry Date.