Professional Documents
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MARKET IN FEAR
G R A N T S
F A L L
C O N F E R E N C E
/
N E W
Y O R K
C I T Y
-
O C T O B E R
2 3 ,
2 0 1 2
For
Investment
Professional
Use.
Not
for
DistribuLon
You
cannot
stop
the
waves,
but
you
can
learn
to
surf
Jon
Kabat-Zinn
DeniLon
of
fear
from
Merriam-Webster
What is VolaZlity?
100
80
5,000
60
40
500
20
50
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
1948
1946
1944
1942
1940
1938
1936
1934
1932
1930
1928
80
100
60
40
20
Aug-23
Nov-23
Aug-23
Nov-23
May-23
Feb-23
Nov-22
Aug-22
May-22
Feb-22
Nov-21
Aug-21
May-21
Feb-21
Nov-20
Aug-20
May-20
Feb-20
Aug-19
May-19
Feb-19
Nov-18
Aug-18
May-18
Feb-18
2,000
Weimar
VIX?(1)
Realized
Volatility
of
German
Stock
Market
during
Weimar
Republic
Hyperinflation
(monthly
volatility
data
annualized)
1,500
Volatility (%)
100,000,000
10,000,000
1,000,000
100,000
10,000
1,000
100
10
1
0
0
0
0
0
0
Nov-19
120
1,000
500
Source:
Economics
of
InaLon;
A
Study
of
Currency
DepreciaLon
in
Post-War
Germany"
by
ConstanLno
Bresciani-Turroni
Out
of
Print
/
1968
(1)
Based
upon
monthly
realized
variance
from
available
stock
price
data.
May-23
Feb-23
Nov-22
Aug-22
May-22
Feb-22
Nov-21
Aug-21
May-21
Feb-21
Nov-20
Aug-20
May-20
Feb-20
Nov-19
Aug-19
May-19
Feb-19
Nov-18
Aug-18
May-18
Feb-18
There
are
known
knowns;
there
are
things
we
know
that
we
know.
There
are
known
unknowns;
that
is
to
say
there
are
things
that,
we
now
know
we
don't
know.
But
there
are
also
unknown
unknowns
there
are
things
we
do
not
know,
we
don't
know.
Donald
Rumsfeld,
United
States
Secretary
of
Defense
Known
Unknowns
US
Fiscal
Cli
China
hard
landing
War
with
Iran
European
Crisis
Global
Recession
Fiscal
Austerity
Vola;lity
Vanilla
Op7ons
VIX
Index
Unknown Unknowns
Realized
Vola7lity
Variance
Swap
Vola;lity
of
Vola;lity
Forward
Vola7lity
Tail
Risk
Hedging
Convexity
Vol
Curve
Trades
Known Unknowns
Unknown Unknowns
Debt-Cycle Crash
Predictable
(in
retrospect)
Unpredictable
(even
In
retrospect)
New
paradigm
for
pricing
risk
that
emerged
a^er
the
2008
nancial
crisis
as
related
to
our
collec;ve
fear
of
the
next
dea;onary
crash
I. EmoZonal
II. Monetary
Greater
Demand
for
VolaZlity
III. Macro-Risks
IV. Regulatory
Government
regulaZon
(Dodd-Frank,
Volcker
rule)
has
constrained
risk
appeZte
for
banks
to
supply
volaZlity
Lower
demand
for
structured
products
by
investors
Less
Supply
of
VolaZlity
"There
is
no
terror
in
the
bang,
only
in
the
anZcipaZon
of
it."
Alfred
Hitchcock
VolaZlity
term-structure
measures
the
anZcipaZon
of
future
volaZlity
1.90x
1.50x
1.30x
1.10x
0.90x
Jul-12
Feb-12
Dec-11
Sep-11
Jun-11
Apr-11
Jan-11
Oct-10
Jul-10
M6
M3
VIX
May-10
0.50x
Feb-10
0.70x
Mar-04
Jun-04
Sep-04
Nov-04
Feb-05
May-05
Aug-05
Oct-05
Jan-06
Apr-06
Jun-06
Sep-06
Dec-06
Mar-07
May-07
Aug-07
Nov-07
Feb-08
Apr-08
Jul-08
Oct-08
Dec-08
Mar-09
Jun-09
Sep-09
Nov-09
1.70x
Expiry
The
most
extreme
term-structure
for
S&P
500
index
volaZlity
in
two
decades
reects
conZnued
anZcipaZon
of
a
deaZonary
collapse
Ra;o
of
Expected
Future
Vola;lity
as
Ra;o
to
Spot
Vola;lity
S&P
500
op;ons
2.4x
2.2x
2.0x
VIX
Index
1.8x
1.6x
1.4x
1.2x
0.08 0.17 0.25 0.33 0.42 0.50 0.58 0.67 0.75 0.83 0.92 1.00 1.08 1.17 1.25 1.33 1.42 1.50
Expiry
(1=year)
Cumulative
Average
(1990-Mar
2012)
Bull
Market
of
1990s
(avg.)
2009
to
2012
Bull
Market
in
Fear
10
30
25
20
August
17,
2012
/
Lowest
VIX
in
5
years
15
10
Spot
VolaZlity
spikes
consistently
occur
a\er
the
end
of
central
bank
balance
sheet
expansion
Fed
Balance
Sheet
Expansion
and
VIX
index
No
Fed
Action
QEI
QEII
Op.
Twist+LTRO(ECB)
QEIII
VIX
120%
110%
50
LTRO
(ECB),
Op
Twist
(Fed)
&
QEIII
(Fed)
40
QEII
Flash
Crash
100%
45
130%
35
90%
30
80%
25
70%
20
60%
15
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Since
2008
global
central
banks
have
expanded
their
balance
sheets
by
$9
trillion
-
enough
at
money
to
buy
every
person
on
earth
a
55''
wide-screen
3D
television
12
Post-TraumaZc-DeaZon-Disorder (PTDD)
Highly unlikely events are either ignored or vastly over weighted based on our collec;ve experiences
Heart
Disease
1
in
6
25%
20%
Cumulative Probability
15%
Stroke
1
in
28
10%
Car
Crash
1
in
88
5%
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
-45%
-50%
0%
Implied
12m
%G/L
in
S&P
500
Index
A
black
swan
is
not
dying
because
your
parachute
didnt
open
while
skydiving.
it
is
dying
because
the
guy
whose
parachute
didnt
open
landed
on
you
while
you
were
golng
Note:
Artemis
calculates
the
implied
probability
distribuLon
using
interpolated
weights
from
variance
swap
pricing.
This
methodology
may
occasionally
give
higher
weighLngs
to
tails
in
down
markets
than
other
methods
like
taking
the
second
derivaLve
of
call
prices,
cng
mixture
of
normal
PDFs
to
recover
prices,
or
cng
vol
models
(SVI,SABR).
(1)
"LifeLme
Odds
of
Death
for
Selected
Causes,
United
States,
2007"
/
NaLonal
Safety
Council
2011
EdiLon
13
40%
30%
40%-50%
20%
30%-40%
10%
20%-30%
0%
10%-20%
-5.0%
10.0%
25.0%
-20.0%
-35.0%
-50.0%
2009
2008
Low
vo
exce laZlity
/
regim ss
kurto
low
sis
e
b
Pos
2004 etween
-200
Mar t-2008
B
7
ket
i
n
Ta ull
il
Ris
k
2010
2008
2007
2006
2006
2005
0%-10%
2004
1995
1995
1996
1996
1997
1998
1998
1999
2000
2000
2001
2002
2002
2003
2004
Cumulative Probability
50%
Note:
Artemis
calculates
the
implied
probability
distribuLon
using
interpolated
weights
from
variance
swap
pricing.
This
methodology
may
occasionally
give
higher
weighLngs
to
tails
in
down
markets
than
other
methods
like
taking
the
second
derivaLve
of
call
prices,
cng
mixture
of
normal
PDFs
to
recover
prices,
or
cng
vol
models
(SVI,SABR).
14
Correlation (0-1)
1
0.8
0.6
0.4
0.2
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2003
2002
2001
Volatility (%)
2012
2011
2010
2009
2008
2007
2006
2004
2003
2002
2001
2000
2005
205
185
165
145
125
105
85
65
45
2000
15
Correlation
of
$USD
Index
to
VIX
Index
(1986
to
2012)
0.4
0.2
-0.2
-0.4
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
Note: Prior to 1990 there was not VIX index. We have subsLtuted the CBOE VXO index, the precursor to the VIX, which was available starLng in 1986.
16
The more we fear the le\ tail the more you should buy the right
Tail risk pricing (both le^ and right) has been consistently late to the game
when a bull market in fear meets a bubble in safety bet on interest rate vola;lity
17
240
220
200
180
160
140
120
Very
Expensive
Fear
Cheap
Fear
100
US Fiscal Cli
80
60
40
11-Oct-12
6-Nov-12
3-Dec-12
28-Dec-12
25-Jan-13
Forward
Period
21-Feb-13
19-Mar-13
15-Apr-13
9-May-13
18
Fear Arbitrage
1.6x
1.5x
1.4x
1.3x
1.2x
1.1x
Unknown
Unknown
Crash
1.0x
Month
1
Month 2
Month 3
Known-Unknown Crash
Month 4
Month 5
Month 6
Month 7
Month 8
19
Role
of
the
trader
is
not
so
much
to
predict
the
future
but
to
idenZfy
mispriced
risk
The
opLons
market
is
consistently
late
to
the
game
in
pricing
both
the
right
and
leh
tails
Cross
Asset
Implied
Probability
DistribuZon
Comparison
(2008
pre-crisis
to
2012)
Variance
Swap
WeighZng
{
SPY,
EFA,
EEM,
TLT,
IEF,
HYG,
USO,
GLD
}
2012
Pre-Crisis
2008
60%
60%
Right
Tail
Bias
Probability Of Return
50%
40%
30%
20%
10%
40%
40%
30%
30%
20%
20%
Note:
Artemis
calculates
the
implied
probability
distribuLon
using
interpolated
weights
from
variance
swap
pricing.
This
methodology
may
give
higher
weighLngs
to
tails
in
down
markets
than
more
tradiLonal
methods
like
taking
the
second
derivaLve
of
call
prices,
cng
mixture
of
normal
PDFs
to
recover
prices,
or
cng
vol
models
(SVI,SABR).
Gold
Oil
Gold
HY
Bonds
Oil
UST
10yr
HY
Bonds
UST
130yr
0yr
UST
Intl.
3E0yr
quity
(Emerg)
UST
Intl.
EEquity
quity
(Emerg)
(Dev)
Intl.
US
EEquity
Intl.
quity
(Dev)
US
Equity
+2.5
+2.5
+2.0
+2.0
+1.5
+1.5
+1.0
+1.0
+0.5
+0.5
+0.0
+0.0
-0-.5
0.5
-1-.0
1.0
-1-.5
1.5
-2-.0
2.0
-2-.5
2.5
Gold
Oil
10%
HY
Bonds
10%
UST
10yr
UST
30yr
Intl.
Equity
(Emerg)
Intl.
Equity
(Dev)
0%
US
Equity
0%
-3-.0
3.0
+2.5
+2.0
+1.5
+1.0
+0.5
+0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
0%
Lel
tail
bias
50%
50%
Probability
Of
ORf
eturn
Probability
Return
60%
The more people fear the LEFT TAIL the more you should buy the RIGHT and vice versa
20
Maybe
it
is
correct
to
buy
tail
risk
insurance
...
but
is
everyone
just
hedging
the
wrong
tail?
20%
15%
10%
The more people fear the LEFT TAIL the more you should buy the RIGHT
Future?
5%
0%
-50% -43% -35% -28% -20% -13% -5% +3% +10% +18% +25% +33% +40% +48%
One
Year
Gain/Loss
%
in
S&P
500
index
Note:
Artemis
created
a
model
to
simulate
the
behavior
of
the
S&P
500
index
and
volaLlity
during
an
inaLonary
shock.
The
model
is
not
intended
to
be
a
predicLon
of
the
future
but
is
merely
a
rudimentary
stochasLc-
based
method
to
understand
what
modern
markets
may
look
like
in
rampant
inaLon.
The
simulaLon
runs
10,000
price
scenarios
for
the
S&P
500
index
over
10
years
modeling
daily
stock
price
behavior
using
a
generalized
Wiener
process
(Wiener..
not
Weimar)
and
a
drih
rate
that
assumes
linkages
between
annual
CPI
and
equity
performance.
We
assume
inaLon
rises
sharply
from
current
levels
of
2.87%
in
2012
to
26%
by
2015
and
stays
elevated
at
that
level
unLl
2017
(20%
a
year
overall).
The
average
volaLlity
shihs
are
based
upon
assumpLons
regarding
equity
return
to
variance
parameters
observed
in
prior
inaLonary
episodes
(1970s
US
&
1920s
Germany).
The
simulaLon
shows
annualized
SPX
returns
for
the
decade
at
+9.94%
but
adjusted
for
inaLon
this
drops
to
-9.8%.
21
600
550
500
Growth of $100
450
Tactical Allocation to S&P 500 during periods with Steep Vol Slope
400
350
300
250
200
150
100
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Note: A steep volaLlity surface is described as a 1yr variance swap K to VIX index raLo that is greater than the historic average. Assumes any weekly period of Fed BS expansion.
2008
2009
2010
2011
2012
22
When
the
Bull
Market
in
Fear
meets
a
Bubble
in
Safety
a
short
equity
opZon
posiZon
and
risk-free
UST
bond
have
similar
risk-to-reward
payos!
Ecient
FronZer
/
Risk
to
Reward
Comparison
Long
Dated
UST
Bond
vs.
1yr
OTM
Short
Puts
(collateralized)
Return
/
Yield
30yr
UST
Bond
10yr
UST
Bond
Risk
nrealized
Loss
Loss
Stress
Test
Scenario
Risk
//
UUnrealized
in
in
Stress
Test
Scenario
SPX
Put
Stress
Test
UST
Bond
Stress
Test
SPX
-25%
13%
chance
SPX -50%
2% probability
Note:
All
data
as
of
September
14,
2012.
EsLmated
unrealized
loss
on
posiLon
given
stress
test
scenario.
Historic
probability
data
based
on
period
of
1960
-
2012
for
the
UST
bonds
and
1950
to
2012
for
the
S&P
500
index.
OpLon
pricing
based
on
esLmated
local
volaLlity
shihs,
however
actual
shihs
may
dier
from
esLmates
during
a
real
crash
depending.
All
stress
tests
are
assumed
to
occur
close
to
the
purchase
period
of
the
instrument.
Unrealized
losses
may
dier
closer
to
maturity.
23
250
200
150
100
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Source: Bloomberg
Dec-08
Oct-08
50
24
25
26
Baudrillard
recalls
Borges
fable
about
cartographers
of
a
great
empire
who
drew
a
detailed
map
When
the
empire
collapses
the
map
is
accepted
as
truth
and
the
empire
forgosen
In
the
postmodern
economy
market
expecta;ons
are
more
important
to
fundamental
growth
than
the
reality
of
supply
and
demand
the
market
was
designed
to
mimic
What
Baudrillard
calls
the
desert
of
the
real
is
what
Bernanke
idenZes
as
the
wealth
eect
Post-Modern Economy
The
real
economy
is
not
slave
to
the
shadow
banking
system
our
economy
IS
the
shadow banking system the empire is gone and we live in the abstrac;on
27
VolaZlity
Markets
DerivaZ
ve
Market
s
VolaZlity
Financi
al
Market
s
Economic
Reality
Fiat
Currency
28
VolaZlity
as
a
concept
is
widely
misunderstood.
VolaZlity
is
not
fear.
VolaZlity
is
not
the
VIX
index.
VolaZlity
is
not
a
staZsZc
or
a
standard
deviaZon,
Black-Scholes
input,
or
any
other
number
derived
by
abstract
formula.
VolaZlity
is
no
dierent
in
markets
than
it
is
to
life.
VolaZlity
is
an
instrument
of
truth
Regardless
of
how
it
is
measured
vola;lity
reects
the
dierence
between
the
world
as
we
imagine
it
to
be
and
the
world
that
actually
exists
We
will
only
prosper
if
we
relentlessly
search
for
nothing
but
the
truth,
otherwise
the
truth
will
nd
us
through
vola;lity
the
Truth
is
that
Capitalism
can
save
us
but
First
We
Must
Find
a
Way
to
Save
Capitalism
29
Christopher
Contact
InformaZon
Cole,
CFA
General
Partner
and
Founder
Artemis
Research:
Vola7lity
of
an
Impossible
Object:
Risk,
Fear,
and
Safety
in
Games
of
Percep7on
Vola7lity
at
Worlds
End:
Dea7on,
Hyperina7on
and
the
Alchemy
of
Risk,
March
30,
2012
Figh7ng
Greek
Fire
with
Fire:
Vola7lity
Correla7on,
and
Truth,
September
30,
2011
Is
Vola7lity
Broken?
Normalcy
Bias
and
Abnormal
Variance,
March
30,
2011
The
Great
Vega
Short-
vola7lity,
tail
risk,
and
sleeping
elephants,
January
4,
2011
Unied
Risk
Theory
-
Correla7on,
Vol,
M3
and
Pineapples,
September
30,
2010
Artwork:
"Vola7lity
at
World's
End"
by
Brendan
Wiu
2012
/
copyright
owned
by
Artemis
Capital
Management
LLC
"VolaLlity
of
an
Impossible
Object"
by
Brendan
Wiu
/
Concept
by
Christopher
Cole
2012
/
copyright
owned
by
Artemis
Capital
Management
LLC
Jack-o-Lantern
Istock
photo
/
used
based
on
purchase
of
rights
Ocean
Waves
Istock
photo
/
used
based
on
purchase
of
rights
"Odysseus
facing
the
choice
between
Scylla
and
Chrybdis"
by
Henry
Fuseli
1794
/
public
domain
"Penrose
Triangle,
Devils
Turning
Fork
&
Neckers
Cube
Derrick
Coetzee
/
Public
Domain
"Liberty
Leading
the
People"
by
Eugne
Delacroix
1830
/
public
domain
Ocean
wave
pictures
provided
by
istockphoto.com
Reference
Material:
Simulacra
and
Simula7on
by
Jean
Baudrillard
/
University
of
Michigan
/
1994
"A
Tale
of
Two
Indices"
by
Peter
Carr
&
Liuren
Wu
December
22,
2005
VIX
Deriva7ves:
A
Poor
Prac77oners
Model
Maneesh
Deshpande
/
May
19
2011
Understanding
VIX
Futures
and
Op7ons
Dennis
Dzekouno;
Futures
Magazine/
August
2010
The
Vola7lity
Surface:
A
Prac77oners
Guide.
Jim
Gatheral
/
John
Wiley
and
Sons,
Hoboken,
NJ,
2006
"Think
Fast
and
Slow"
by
Daniel
Kahneman
/
Farrar,
Staus
and
Giroux
2012
Op7ons,
Futures,
and
Other
Deriva7ves
John
C.
Hull,
Filh
Edi7on;
Pren7ce
Hall
2003
"Life7me
Odds
of
Death
for
Selected
Causes,
United
States,
2007"
/
Na7onal
Safety
Council
2011
Edi7on
Vola7lity
Trading
Evan
Sinclair,
Wiley
Trading
2008
"Dying
of
Money:
Lessons
of
the
Great
German
and
American
Ina7ons"
by
Jens
O.
Parsson
/
Wellspring
Press
1974
"Economics
of
Ina7on;
A
Study
of
Currency
Deprecia7on
in
Post-War
Germany"
by
Constan7no
Bresciani-Turroni
Out
of
Print
/
1968
Variance
Swaps
Peter
Allen,
Stephen
Einchcomb,
Nicolas
Granger;
JP
Morgan
Securi7es
/
November
2006
"Laughter
in
the
Dark
-
The
Problem
of
the
Vola7lity
Smile"
by
Emanuel
Derman
May
26,
2003
Robust
Hedging
of
Vola7lity
Deriva7ves
Roger
Lee
&
Peter
Carr;
Columbia
Financial
Engineering
Seminar
/
September
2004
More
than
you
Ever
Wanted
to
Know
About
Vola7lity
Swaps
Kresimir
Demeter,
Emanual
Derman,
Michael
Kamal
&
Joseph
Zou;
Goldman
Sachs
/
March
1999
The
Performance
of
VIX
Op7on
Pricing
Models:
Empirical
Evidence
Beyond
Simula7on
Zhiguang
Wang;
Florida
Interna7onal
University
/
April
2009
Recent
Developments
in
VIX
Exchange
Traded
Products
Maneesh
Deshpande/
April
3,
2012
"Dea7on:
making
sure
'it'
doesn't
happen
here"
by
Ben
S.
Bernanke
(speech)
/
US
Federal
Reserve
November
2002
"US
Op7ons
Strategy
TVIX
Explosion
Drives
Vol-of-Vol
Higher"
Deutsche
Bank
February
23,
2012
"Unknown
Unknowns:
Vol-of-Vol
and
the
Cross
Sec7on
of
Stock
Returns"
Guido
Baltussen,
Sjoerd
Van
Bekkum
and
Bart
Van
Der
Grient
/
Erasmus
School
of
Economics
&
Robeco
Quan7ta7ve
Strategies/
July
30,
2012
Deni7on
of
"Impossible
Object"
/
Wikipedia
/
hQp://en.wikipedia.org/wiki/Impossible_object
30
Christopher
Contact
InformaZon
Cole,
CFA
General
Partner
and
Founder
Christopher
Cole,
CFA
Managing
Partner
&
Poroolio
Manager
/
Artemis
Capital
Management
LLC
Christopher
R.
Cole,
CFA
is
the
founder
of
Artemis
Capital
Management
LLC
and
the
porwolio
manager
of
the
Artemis
Vega
Fund
LP.
Mr.
Coles
core
focus
is
systema7c,
quan7ta7ve,
and
behavioral
based
trading
of
exchange-traded
vola7lity
futures
and
op7ons.
His
decision
to
form
a
fund
came
aler
achieving
signicant
proprietary
returns
during
the
2008
nancial
crash
trading
vola7lity
futures.
His
research
leQers
and
vola7lity
commentaries
have
been
widely
quoted
including
by
publica7ons
such
as
the
Financial
Times,
Bloomberg,
Interna7onal
Financing
Review,
CFA
Magazine,
and
Forbes.
He
previously
worked
in
capital
markets
and
investment
banking
at
Merrill
Lynch.
During
his
career
in
investment
banking
and
pension
consul7ng
he
structured
over
$10
billion
in
deriva7ves
and
debt
transac7ons
for
many
high
prole
issuers.
Mr.
Cole
holds
the
Chartered
Financial
Analyst
designa7on,
is
an
associate
member
of
the
NFA,
and
graduated
Magna
Cum
Laude
from
the
University
of
Southern
California.
31
THIS
IS
NOT
AN
OFFERING
OR
THE
SOLICITATION
OF
AN
OFFER
TO
PURCHASE
AN
INTEREST
IN
ARTEMIS
VEGA
FUND,
L.P.
(THE
FUND).
ANY
SUCH
OFFER
OR
SOLICITATION
WILL
ONLY
BE
MADE
TO
QUALIFIED
INVESTORS
BY
MEANS
OF
A
CONFIDENTIAL
PRIVATE
PLACEMENT
MEMORANDUM
(THE
MEMORANDUM)
AND
ONLY
IN
THOSE
JURISDICTIONS
WHERE
PERMITTED
BY
LAW.
AN
INVESTMENT
SHOULD
ONLY
BE
MADE
AFTER
CAREFUL
REVIEW
OF
THE
FUNDS
MEMORANDUM.
THE
INFORMATION
HEREIN
IS
QUALIFIED
IN
ITS
ENTIRETY
BY
THE
INFORMATION
IN
THE
MEMORANDUM.
AN
INVESTMENT
IN
THE
FUND
IS
SPECULATIVE
AND
INVOLVES
A
HIGH
DEGREE
OF
RISK.
OPPORTUNITIES
FOR
WITHDRAWAL,
REDEMPTION
AND
TRANSFERABILITY
OF
INTERESTS
ARE
RESTRICTED,
SO
INVESTORS
MAY
NOT
HAVE
ACCESS
TO
CAPITAL
WHEN
IT
IS
NEEDED.
THERE
IS
NO
SECONDARY
MARKET
FOR
THE
INTERESTS
AND
NONE
IS
EXPECTED
TO
DEVELOP.
NO
ASSURANCE
CAN
BE
GIVEN
THAT
THE
INVESTMENT
OBJECTIVE
WILL
BE
ACHIEVED
OR
THAT
AN
INVESTOR
WILL
RECEIVE
A
RETURN
OF
ALL
OR
ANY
PORTION
OF
HIS
OR
HER
INVESTMENT
IN
THE
FUND.
INVESTMENT
RESULTS
MAY
VARY
SUBSTANTIALLY
OVER
ANY
GIVEN
TIME
PERIOD.
CERTAIN
DATA
CONTAINED
HEREIN
IS
BASED
ON
INFORMATION
OBTAINED
FROM
SOURCES
BELIEVED
TO
BE
ACCURATE,
BUT
WE
CANNOT
GUARANTEE
THE
ACCURACY
OF
SUCH
INFORMATION.
LEGAL DISCLAIMER
Legal Disclaimer
32
An
investment
in
the
Partnership
and
strategies
discussed
in
this
document
involve
a
number
of
signicant
risks.
For
a
full
list
of
potenLal
risk
factors
please
review
the
Oering
Memorandum.
ProspecLve
Limited
Partners
should
read
the
enLre
Memorandum
and
the
Partnership
Agreement
and
consult
with
their
own
advisers
before
deciding
whether
to
invest
in
the
Partnership.
In
addiLon,
as
the
Partnerships
investment
program
develops
and
changes
over
Lme,
an
investment
in
the
Partnership
may
be
subject
to
addiLonal
and
dierent
risk
factors.
ProspecLve
investors
should
also
consult
with
their
own
nancial,
tax
and
legal
advisors
regarding
the
suitability
of
this
investment.
Artemis
Capital
Management,
L.L.C.
does
not
guarantee
returns
and
investors
bear
the
risk
of
losing
a
substanLal
porLon
of
or
potenLally
their
enLre
investment.
DISCLOSURE
All
2009
performance
numbers
quoted
within
this
document
are
derived
from
nancial
statements
that
were
audited
by
Spicer
Jeries.
Proprietary
trading
results
for
White
Fox,
LLC
(the
Proprietary
Account)
are
presented
within
this
document
that
were
veried
by
Spicer
Jeries.
The
Principal
of
the
General
Partner,
Christopher
R.
Cole,
used
the
Proprietary
Account
as
a
vehicle
to
incubate
the
investment
strategy
of
the
Partnership
with
personal
funds
as
well
as
those
of
close
family
members.
Note
that
no
management
or
performance
fees
were
charged
to
the
Proprietary
Account
proled.
Accordingly,
the
Pro
Forma
Performance
presented
in
this
document
includes
imposiLon
of
a
2%
Management
Fee
and
20%
Performance
AllocaLon
(in
line
with
those
charged
against
the
Partnership).Past
performance
is
not
indicaLve
of
future
returns.
33