140304 bayou city capital investor update march 4

Investor Presentation

March 4, 2014

Key Meeting Points 1. Performance: Bayou City Capital Has Outperformed the S&P 500 by Over 3x Since

Strategy Inception (122 months).

2. Volatility as an Asset Class: Bayou City Capital Provides a Unique Addition to an Investment Portfolio with Significant Outperformance in a Variety of Market Scenarios.

3. Risk Management: A Vigilant Risk Mitigation Mindset, Constant Market Surveillance, and Active Futures Hedging Combine to Limit Downside Risk Exposure to Recurring Adverse Market Events.

4. Sound Business Structure: The Fund Has Hired Non-Affiliated, Third-Party Firms for Mid and Back-office Functions to Create Independence in Reporting and a Seamless Order of Operations.

5. User-Friendly Investment Terms: Limited Partners Enjoy Monthly Liquidity, Investment Transparency, and a Quarterly Hurdle Rate Before Incentive Fees.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS

The Trading Strategy Overview


S&P 500 Option Overwriting Program (The “Trading Strategy”) The Bayou City Capital Fund was established in 2000 to explore an option-selling strategy using a variety of commodities. In 2004 Bayou City Capital exclusively used the S&P 500 for the Trading Strategy which is based upon two premises: 1) The overall directional trend of the equity market (S&P 500) is positive over the long-term. 2) Options on the S&P 500 are overvalued as the future volatility the options' prices imply is an overestimate, on average, of the market volatility that actually occurs. Under these premises, the Fund writes options on S&P 500 futures at the Chicago Mercantile Exchange (CME) in order to benefit from market appreciation and the passage of time. Market Opportunity • Since the inception of trading in 2004, the Trading Strategy has outperformed the equity markets,

generating 22.97% annualized returns vs. 7.14% in the S&P 500, more than a 3x multiple. • In an investing environment filled with uncertainty, the Trading Strategy provides portfolio diversification

with its monthly returns displaying a low correlation of .49 with the movements of the S&P 500.

Months

122

122

122

122

122

122

Correlation to

S&P 500

Sortino

Ratio

Bayou City Capital 22.97 43.61 34.46 1.47 22.92 0.49 0.49

Return (%) Std Dev (%)Downside

Risk (%)

Beta vs.

Market

Alpha vs.

Market (%)

Sharpe

Ratio

0.75

S&P 500 7.14 14.62 11.32 1.00 0.00 0.38 1.00 0.69

Barclay's U.S. Bond Index 4.66 3.38 2.44 0.01 4.66 0.91

Russell 1000 U.S. Large Cap Index 7.37 14.92 11.58 1.02 0.27

0.03

0.39 1.00 0.70

0.03 2.59

0.07DOW UBS Commodity Index 0.89 17.97 13.65 0.60 -2.14 -0.04 0.49

S&P Goldman Commodity Index 0.54 23.94 18.18 0.74 -2.31 -0.04 0.45

S&P 500 4.30 25.06 13.70 22.58 7.14

1 Month

Return (%)

1 Year

Return (%)

3 Year

Return (%)

5 Year

Return (%)

Return Since

Inception (%)

Bayou City Capital 7.58 39.25 27.77 44.89 22.97

$100,000 Invested on Jan. 1, 2004, is Worth $818,363 (est) on Feb. 28, 2014

Historical Performance


Return Table: Jan. 2004 – Feb. 2014 Compounded Annual Statistics

BCC

S&P 500

Option Primer


BCC

S&P 500

Put-Call Parity: Assuming same strike and expiration, synthetic options can be created through the underlying instrument (the S&P 500) and opposing option (call vs. put and vice versa). This algebraic relationships provides for efficient portfolio construction.

Long Underlying :

Covered Call :

Long Call : Underlying + Put = Call (U + P = C)

Long Put : Call - Underlying = Put (C – U = P)

Underlying = Call - Put (U = C - P)

Underlying - Call = - Put (U - C = - P)

Volatility Chart


BCC

S&P 500

Volatility Arbitrage

Taper Talk

Sequester

Debt-Ceiling

Fund Monthly Returns (# of Months) Jan. 2012- Present


New Risk Mindset

& Controls Positively

Skews Returns

When To Hedge a Short Option Position?

Active Hedging, Smaller Trades

Infrequent Hedging, Stopping Out

Strategy Refinements Last 3 Years: 1) Hedging Mindset: More active. Aim

big, miss small. 2) VIX Futures: One-day hedge during

market panics.

3) Position Close During Market Crashes: If needed after other adjustments, exit market.

These inputs limit the Strategy’s downside risk as well as increasing upside exposure in positive tail events.

Strategy Improvements

Option Characteristics: • Finite Time Span; Value Declines Over

Time as Option Approaches Expiration. BCC Focuses on Short-Dated Options.

• Option Value Changes Non-Linearly In

Respect to the S&P 500.

• Option Values Also Rise and Fall With the Emotion of the Market, i.e. the Demand for Insurance.

Assess US Futures, Data Released, Option Trading P&L Run Assess US Futures Reconcile Trades Set Stops If Needed Strategy Meeting and P&L

Europe Open (3:30 AM) US Open (8:30 AM) Futures Close (3:15 PM) Futures Open (5:00 PM) Overnight

A Day In The Life


BCC

S&P 500

Manage Fund Position (Futures)

Perpetual Vigilance An assumption of option pricing theory is that an underlying instrument has a “smooth” price movement, with no large gaps in between price changes. Option hedging is most efficient when this assumption holds, and the goal of the Fund is to capture this through constant market surveillance.

Risk Management Thesis Within an option-writing strategy, a hedge-first approach increases performance over time and limits drawdowns.

Overview of a Sound Trading Structure


Depicted below is a typical marketing and trading structure, including the primary areas of responsibility from the front, middle, and back offices. This recognizes appropriate segregation of duties and eliminates incompatible functions within a given area. The proper roles and responsibilities for each of the positions should be based on a comprehensive view of sound risk management principles.

Portfolio Construction

& Trading Trade Execution

Deal Validation

Daily Risk Monitoring

Risk Control

& Analysis

Customer Service

Month-end Close

Risk Monitoring Commercial / Trading Administration / Accounting

Financial Statements

Information & Trading Technology: OptionVue (Bob) GlobalRisk (Will) LiquidTrade (Fund)

Front Office Bayou City Capital, Houston

Middle Office Liquid Holdings, New York

Back Office Liccar & Co., Chicago

Cash Control

Criteria Limit/Range Duration Action

Short Outright Strikes- Both

Put/Call< 75 per $1,000,000 of net liquidity Ongoing

If outside limit at market close, Fund must cover positions to bring into

compliance at next market open

Margin Utilization < 60% Ongoing Fund Discretion

Margin Utilization 60% to 70% Ongoing Fund may not establish additional positions

Margin Utilization > 75% Ongoing At market open, cover positions by Fund discretion to bring < 70% margin limit

Delta Range -2 to 8 per $1,000,000 of net liquidity OngoingDelta, measured intra-day with internal models and with FCM risk reports as of

market close, must stay within range. Buy/sell futures to bring within limits.

Delta Target 3 to 5 per $1,000,000 of net liquidity Fund Discretion Fund Discretion

Gamma < -.50 contracts per $1,000,000 liquidity OngoingApproaching limit- no additional positions established. Cover lowest delta option

positions to bring within limit.

Vega < $25k per $1,000,000 net liquidity OngoingApproaching limit- no additional positions established. Buy puts 1-3 months until

expiration to bring within limit.

Cover OTM Options Option Price < $1.00 3 Days Max Before CoveringIf option < $1.00 for 3 days

then Fund must join the bid and lift within 3 days

Cover Synthetic ITM Options Option Price < $1.00 3 Days Max Before CoveringIf option < $1.00 for 3 days

then Fund must join the bid and lift within 3 days

S&P 500 - Risk OnInternal Metrics Show Favorable

Market ConditionsOngoing Fund Maintains Delta and Risk Targets While Implementing Strategy

S&P 500 - DefensiveInternal Metrics Show Market

Conditions WorseningOngoing

Warning - S&P 500 is in a Downtrend. Fund Lowers Delta Below Target Range

and Applies 40% or Less Margin

S&P 500 - Risk Off Internal Metrics Illustrate Market Panic Ongoing

Fund Begins Closing Positions and Ceases Trading for the Present Month and

One Additional Month. Fund Does Not Implement Strategy Until Market

Conditions Improve per Internal Metrics.

S&P 500 - Risk Off Internal Metrics Show Market Crash Ongoing

Fund Begins Closing Positions and Ceases Trading for the Present Month and

One Additional Month. Fund Does Not Implement Strategy Until Market

Conditions Improve per Internal Metrics.

Trading Signals and Risk/Greek Limits

Risk Compliance- LiquidMetrics


Future Goals

2014 To Do List: 1. Complete Mid-Office Risk Monitoring Function (In Progress with Liquid Holdings)

• Daily (real time) Trade & Risk Compliance • Refine and Improve as needed

2. Integrate Data across Front, Mid and Back Offices • Put data in “the cloud”

3. Hire Director of Marketing (In Process)

• Implement front-end customer database (Salesforce) • Establish national marketing network • Prepare for institutional investors

4. Establish Relationship(s) with additional Futures Commission Merchant(s)


Account Information Partnership Structure Series B limited partnership interests in Bayou City Capital are being offered to investors. The characteristics of a Series B limited partner are as follows: • The limited partner will pay Omni (the General Partner) an annual management fee of 2%, of which

1/12 will be paid monthly. • The limited partner pays a quarterly incentive fee to Omni of 20% of any profits that surpass 2% for that

quarter. • If an investor account is at a new high value at the end of a quarter, a high-water mark is set that must

be surpassed for any new incentive fees to incur. • The limited partner has advantageous Section 1256 tax treatment on futures gains; profits taxed at a

weighted 60% capital gains rate and 40% short-term gains rate. • The investor’s partnership interest allows monthly liquidity for further installments or redemptions. • Administration and audit fees are paid by the limited partnership.

• No Minimum Investment.

• Annual External Financial Audit– LaPorte, Houston, Texas.

• The strategy and structure allows scalability with no changes to operations.


140304 bayou city capital investor update march 4

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