After Major Market Gains, 'It's Natural to Feel Uneasy,' Says Miami Hedge Fund Founder

With approximately four years since the dramatic market decline triggered by the global pandemic, concerns are mounting about challenging times ahead, particularly amid uncertainties surrounding geopolitics and the economy.

“It’s natural to feel uneasy after a big advance,” remarked Adrian Lechter, founder of Volbot, a startup hedge fund based in Miami. Lechter said those wary of interest rate volatility may find risk-defined trades such as options butterflies or 0 DTE straddles beneficial in this environment.

“While historical data on the correlation between rate declines and market downturns is limited, in 2023, we saw the Magnificent Seven power higher. Inevitably, there may be some backfilling.”

Lechter speaks from over a decade of experience in markets and technology. After completing his studies in economics and math at the University of Pennsylvania, he pursued market-making at Chicago-based Belvedere Trading. There, he managed books of derivatives positions.

“Reality often diverges from consensus expectations,” he said, discussing some do-or-die situations he’s been in. “About eight or nine years ago, China announced an unexpected rate hike, a scenario with only a 5% likelihood. My monitors lit up like Christmas trees.”

After a hiatus spent traveling the world and building technology at Uber Technologies Inc and Wag! Group Co, Lechter's passion for markets, largely due to their egalitarian nature, has been recently re-ignited with the launch of Volbot.

“From a young age, I enjoyed finding glitches in games, such as Electronic Arts Inc's FIFA,” he said. “While it's more challenging to find real-world glitches, my experience as a market-maker and in tech has equipped me with knowing where to look.”

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Despite advancements in market structure and technology, human involvement persists. Lechter assists institutional investors in taking advantage of the market's mechanical and reflexive tendencies to minimize losses during challenging years.

“Since 2016, market-making has changed quite a bit, but the core principles of adjusting your models and actively trading still hold,” he said. He highlighted the proliferation of products like daily option expiries and increased automation on both sides of the market, manifesting exploitable edges. “I have built a literal hedge fund designed to improve the long-term compounding power of your portfolio with diversified, uncorrelated returns.”

Volbot's strategies are proprietary, with trade structures potentially incorporating the same complex options spreads shared earlier. Since its establishment, Volbot has onboarded 16 investors, including family offices. Lechter highlighted Volbot's success, noting an 8% return last year and a 17% return the preceding year, despite challenging market conditions.

“My two-to-five-year vision is to service more institutions, designing a strategy that could perform double-digits in up and down markets with a Sharpe and compounded annual growth rate very appealing to that echelon of clients,” he said.

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Disclaimer: The author of this story, who covers fintech at Benzinga, previously worked with Adrian Lechter at SpotGamma, a market data and insights platform. 

Image by MustangJoe from Pixabay.