By: Mega Faith Associates
STRATEGY EDGE
Sells rich short-dated vol → funds long NDX convexity + net long delta
TRACK RECORD
+69.7% vs NDX +47.6%
RISK PROFILE
Max DD 12% vs 23% Beta 0.45
UPSIDE / DOWNSIDE
~99% up / ~52% down
PORTFOLIO FIT
NDX sleeve replacement
01 · Executive summary
QQQAI Limited expresses long Nasdaq-100 (NDX) exposure not through the index itself but through a cash-collateralised, listed-options structure: it sells the most richly priced short-dated index volatility and VIX-curve roll, and recycles that financing into longer-dated NDX convexity, while retaining net-long equity participation. The edge is structural rather than a single forecast — the volatility term structure persistently overpays for short-dated insurance, and QQQAI monetises that premium to fund cheap long-dated protection. The result, verified over roughly 23 months, is NDX-beating performance at about half the market exposure and half the drawdown: +69.7% since inception versus NDX +47.6%, at a beta of 0.45, with a 12.0% maximum drawdown against the index's 22.8%. This is an antifragile design — built to gain from the dislocations that damage most portfolios.
Interview
02 · Investment Thesis
Institutional allocators face a familiar dilemma with the Nasdaq-100: they want its growth and AI-driven upside, but fear its concentration and its periodic 20–35% drawdowns. The conventional choices are unsatisfying — own the index and accept the drawdowns, or own systematic short-volatility "income" and risk a blow-up when volatility spikes.
QQQAI's variant perception is a market-structure view: the front end of the index-volatility term structure, and the roll of the VIX-futures complex, are persistently overpaid sources of financing, while longer-dated convexity is comparatively cheap. Demand for short-dated crash insurance is structurally inelastic — investors, dealers and institutions repeatedly pay up for near-term protection and for the "fear" embedded in daily option prices — yet realised outcomes, aggregated over time, are far tighter than that daily pricing implies. The gap between richly priced short-dated implied volatility and subsequently realised volatility is the variance risk premium, documented across decades and regimes.
QQQAI harvests this. It sells the richest short-dated index premium and the VIX-curve carry, and recycles the proceeds into longer-dated NDX convexity — a long call-and-put ladder — while holding net-long delta through index futures. In ordinary markets the structure carries positively, because short-dated premium decays faster than the long-dated convexity it funds. In a dislocation, the book is net long the tail and profits. This is the opposite of a naked short-volatility trade: the long-dated convexity is a permanent, funded hedge, not an afterthought — which is why a volatility shock is a source of return here rather than the textbook failure mode.
The mispricing persists because it is structural and because the strategy is genuinely hard to run. Demand for short-dated insurance is behavioural and institutional — it does not arbitrage away after a calm year. Capturing it safely requires disciplined, dynamic management of a multi-expiry, multi-instrument book and constant rebalancing of the financing-versus-convexity trade-off as the term structure moves. That operational discipline is Mega Faith's durable advantage — and it is precisely what an allocator underwrites here, because it is repeatable rather than a one-time call.
03 · Valuation & Catalysts
Because every instrument in the book is exchange-traded, "valuation" is not a discounted-cash-flow question — prices are observable and uncontested. The relevant valuation is the price of volatility: the spread between rich, short-dated implied volatility and the lower realised volatility that actually materialises, together with the persistent contango of the VIX-futures curve. QQQAI's return is the harvest of that spread, net of the cost of the long-dated convexity it funds. The "cheapness" of the idea is therefore the size and persistence of the variance risk premium being converted into owned convexity.
"Catalysts" for a systematic strategy are regimes and checkpoints rather than a single re-rating:
Carry regimes (normal, range-bound markets): the structure earns positive carry as short-dated premium decays faster than the convexity it funds.
Volatility dislocations: the long convexity dominates. In April 2025, QQQAI returned +13.9% while NDX returned +1.6%; across the Q1-2026 drawdown it fell -1.6% versus NDX -5.8%.
NDX rallies: net-long delta captures the bulk of upside — QQQAI matched NDX's +15.7% in April 2026.
Paper-portfolio checkpoints through the 2027 Award provide natural measurement windows.
The honest headwind is a sustained, low-volatility melt-up, where convexity carries a cost and short sleeves cap some upside — for example June 2025, +0.05% versus NDX +6.3%. Across a full 12–24 month cycle, the convex profile has more than compensated.
04 · Risks & Mitigation
QQQAI is antifragile by design, but it is not risk-free, and we do not present it as such.
Low-volatility melt-up (relative lag). The primary risk is opportunity cost: in a relentless, calm grind higher, convexity costs premium and short sleeves can be squeezed. Mitigation: net-long delta via futures preserves upside participation, as the April 2026 result shows.
Ordinary sell-offs before convexity pays. The book can still fall (March 2025, -6.4%) — though less than NDX's -7.6%. Mitigation: the long-dated ladder plus expiry and index diversification.
Short-sleeve gap risk. A sharp adverse move on the financing options or the short VIX-ETF sleeve. Mitigation: modest sizing of that sleeve, a large cash buffer (~89% of NAV), and a strict VaR / maximum-loss budget.
Model, roll and regime/crowding risk. Mitigation: dynamic hedging discipline and explicit de-risk triggers when realised volatility persistently exceeds implied.
The discipline shows in the record: a 12.0% maximum drawdown versus the index's 22.8%, recovered in 10 days against the index's 55 — evidence that the risk framework is real, not aspirational.
05 · Position Sizing & Portfolio Fit
Many allocators now suspect the Nasdaq-100 is late in its cycle and could face leaner years ahead — yet standing aside from the AI theme has itself been an expensive decision. QQQAI is built for precisely that dilemma. It is designed to be evaluated against the NDX allocation an investor already holds, not against a hedge-fund bucket: for an allocator with standing NDX exposure — futures, ETFs or delta-one — the question is not whether to add QQQAI but how much of that sleeve to express through it. Over the verified 23-month record, every level of substitution improved on the index: moving from 0% to 100% QQQAI raised cumulative return and Sharpe monotonically (+47.6% → +69.7%; 0.85 → 1.50), cut volatility by roughly a quarter (21.6% → 16.4% annualised) and halved the maximum drawdown (22.8% → 12.0%). The asymmetry is structural, not selective: month by month, QQQAI captured ~99% of NDX's up months but only ~52% of its down months, and across the index's fifty worst days it absorbed about 40% of the loss. The worst three-month stretch an NDX holder endured was −19.2%; QQQAI's was −4.3%. For the investor who fears the index is peaking but cannot afford to miss its upside, that is the fit: the majority of the upside, without the full downside.
Within the fund, sizing is risk-budgeted, not notional: ~89% of NAV sits in cash collateral earning ~3.1%, overlays run to a strict VaR / maximum-loss budget, diversified across expiries and across NDX and S&P (ES) instruments, and the short VIX-ETF sleeve is deliberately modest to bound gap risk. The fit is full-cycle: fund QQQAI from an existing NDX sleeve (25–100% substitution, minimum 12–24 month horizon), expect it to trail in relentless calm rallies — the carrying cost of owning the convexity — and own it for the asymmetry everywhere else. It replaces equity beta, not cash.
06 · Manager Skill Highlight
Mega Faith Associates' edge is repeatable portfolio construction under option-market mispricing — operating a disciplined, dynamic options book that monetises the volatility term structure across regimes, rather than predicting individual events. The verified, since-inception record (12 July 2024 – 8 June 2026, time-weighted, versus NDX) evidences the skill: +69.7% versus +47.6%, beta 0.45, Sharpe 1.50 versus 0.85, Sortino 2.50 versus 1.23, maximum drawdown 12.0% versus 22.8%, plus the April 2025 antifragility result. Governance is integral: Mega Faith is SFC-licensed (conditions below), serves professional investors only, and runs to a defined VaR / maximum-loss budget.
Conflicts Disclosure
Mega Faith Associates manages QQQAI Limited and has an economic interest in the strategy presented; it may hold or trade the listed instruments described. No issuer, banking, or advisory conflicts are known. SFC licence conditions: (1) "The licensee shall not hold client assets. The terms 'hold' and 'client assets' are as defined under the Securities and Futures Ordinance." (2) "The licensee shall only provide services to professional investors. The term 'professional investor' is as defined in the Securities and Futures Ordinance and its subsidiary legislation." Prepared for professional investors only; internal compliance approval obtained. All analysis is for illustrative and educational purposes only. Past performance is not indicative of future results. This is not investment advice.
Mega Faith Associates Limited is a Hong Kong-based asset manager specializing in multi-strategy derivatives and volatility trading. The firm focuses on delivering risk-controlled alpha through systematic options and futures strategies, supported by robust risk infrastructure including firm-wide VaR frameworks, Greeks monitoring, stress testing, and AI-driven analytics.
Guo Wei is the Portfolio Manager at Mega Faith Associates Limited. He holds an MSc in Financial Mathematics from the University of Minnesota and brings over seven years of experience in volatility derivatives, options trading, and dynamic hedging. Previously, he managed enhanced index and market-neutral options strategies with strong risk-adjusted returns. Guo combines deep quantitative expertise with practical risk management and has built AI and risk-analytics infrastructure to support the firm’s systematic processes.
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