The Bayou City Capital Fund was started in 2000 to explore an option-selling strategy utilized with natural gas storage facilities. The Fund began with friends and family assets and originally, the Strategy was utilized over various asset classes, including natural gas, crude oil, and equity markets. Bayou City Capital began focusing solely on the S&P 500 for the Trading Strategy in 2004, which is based upon these premises:
1.) Markets can be Volatile
2.) Markets are Uncertain
3.) Sustained Predictability about Market Direction is Not Possible
The Bayou City Capital Fund capitalizes on the aforementioned characteristics of the stock market by collecting premium (selling options) on the S&P 500. Following the sale of an option, Bayou City’s profitability is determined by the extent or amount of the premium the Fund is able to retain. Premiums received can be eroded or eliminated due to market fluctuations. Therefore, Bayou City Capital employs strict hedging strategies in an attempt to mitigate this erosion.