This site presents a simulation-based demonstration of a core-satellite investment strategy with systematic downside protection. All performance data is modeled; no actual client assets or proprietary trading records are represented.
The strategy is built on the premise that durable risk-adjusted returns require explicit allocation rules combined with active options management — not passive hedging or discretionary flexibility. Each tier serves a distinct purpose; together they create a portfolio designed to generate alpha in both advancing and declining markets.
Market environments — trending bull, bear, sideways — demand different allocation responses. The framework adjusts options exposure and tier weights based on defined regime signals rather than reactive judgment.
Protective puts are not held passively to expiration. Profits are taken on large down-move days; runners are managed with adjusted stops. After significant down legs, positions are reassessed before reloading — reentry requires confirmation of continued downside momentum. This active management is what separates the strategy's put P&L from a static overlay.
Risk is allocated deliberately across tiers with explicit bounds. The core tier prioritizes capital preservation; the directional tier accepts higher variance for return enhancement; the speculative tier — including targeted long calls — is sized to be portfolio-immaterial at the position level.
Entry, exit, and rebalancing triggers are defined in advance. This removes the behavioral vulnerabilities — loss aversion, recency bias, overconfidence — that most systematically damage discretionary portfolio performance.
Academic grounding in core-satellite theory (Leibowitz & Bova) and risk-parity principles informs the tier boundaries. Each tier has defined allocation bounds, instrument scope, and rebalancing logic. An explicit cash reserve is maintained at all times as a strategic buffer, not a residual.
Risk management in this framework is not reactive — it is pre-specified. The following mechanisms are active at all times regardless of market conditions or short-term performance.
Protective puts on the SPY/QQQ core position are purchased when a defined momentum signal crosses a threshold (e.g., 50-day MA crosses below 200-day MA). Tenor is 60–90 DTE; positions are actively managed and not held passively to expiration.
Each tier operates within defined allocation bounds. Tier III has a 4% hard ceiling; breaches trigger mandatory rebalancing. No single position in Tier II exceeds 7% of total portfolio.
Remaining portfolio weight after tier allocations is held in cash or equivalents. This provides optionality for hedge rolling costs, rebalancing, and opportunistic deployment in dislocated markets.
If total portfolio drawdown from peak exceeds 12%, Tier II positions are reduced to minimum allocation and Tier III is liquidated. Core hedge is reviewed for extension.
Tier allocations are formally reviewed quarterly against defined bands. Drift of more than 5 percentage points from target triggers rebalancing. Intra-quarter rebalancing occurs only on breach of hard limits.
Each month is classified as Bull, Bear, or Transitional based on price momentum, VIX level, and yield curve slope. Tier II allocation target adjusts ±5% based on regime tag. Tier I hedge budget adjusts ±2%.
The strategy is tested against two historically distinct periods — a severe bear market and a sustained bull market — to evaluate behavior across regimes. Active options management, not passive hedging, is the key variable in both. All data is simulated; see methodology disclosures on each page.
SIMULATION DISCLOSURE — All performance figures presented on this site are the output of a quantitative simulation model and do not represent actual investment results, actual trading history, or the performance of any real portfolio or account. Dazu Rock Capital is a demonstration vehicle created for analytical and educational purposes. Past simulated performance is not indicative of future results. No investment advice is offered or implied. This material is not an offering or solicitation of any investment product or service. Benchmark returns (SPY, QQQ) reflect approximate historical index performance for the stated periods and are provided solely for contextual comparison.