Hi Umed

The level of the strike was not set to maximize returns but to match the performance of the HFRI index over time as closely as possible. In fact if you play around with strike levels and leverage you can easily create a strategy that performs better in hindsight. The question remains, however, if this is then a strategy that will perform better in the future or if it is just data mining.

By the way I used Datastream data for all my backtests.

In terms of "safe" securities you could theoretically go for corporate bonds but there are two reasons why I would not do that:
1. The liquidity of corporate bonds is much lower than the liquidity of T-bills. Especially in a credit crunch like 2008 you risk being stuck with your bond positions when you need to buy them or liquidate them.
2. Corporate bonds have a positive correlation with stocks, so when stocks go down credit spreads widen and you lose on your bonds as well. So they provide less protection than T-bills just when you need it most.
All in all, the return is made with the pit premiums and not with the bond side and trying to increase returns on the bond side willintroduce risks that are correlated to stock market risks and defies the purpose of the safe asset in this case.
Best
Joachim