Hedged ETF Strategy

Overview

The Hedged ETF Strategy seeks to provide capital appreciation through participation in the broad equity markets while hedging overall market exposure. The program uses an enhanced index strategy which invest primarily in highly-liquid, broad-based Exchange Traded Funds (ETF's) while using options to limit investor risk, as compared to traditional equity-only investing.



Strategy Benefits

Attempt to earn or protect income while participating in the broad market
Income may be both short- and long-term capital gain rates
Daily liquidity in your existing account
Does not require leverage to achieve results
Full transparency for trades, performance, costs and risk
Customize your risk vs. reward profile according to your objectives

Customize to your Objectives

The Hedged ETF Strategy can be deployed in three varying levels to match your desired risk vs. reward profile according to your investment objectives and market outlook.


Conservative

Income Generation
Narrow trading range generates highest income and limits movement of the underlying ETF.

Moderate

Blended Position
Trading range has moderate income and allows some ETF value appreciation.

Growth

Capital Appreciation
Wide trading range produces some income but allows ETF to move more freely.


All three levels set ETF movement limits 2-to-6 months into the future. This short time-frame allows opportunity for dynamic adjustment to best suit future market movements according to each level's objective.



Investment Methodology

Pacini Hatfield Investments aims to generate monthly income by selling call options based on the ETF's held in the account. Additionally, the holdings may be hedged by purchasing put options that expire 2-to-6 months in the future.

  • Option trades typically last 30-to-120 days to maintain high levels of liquidity
  • Seeks to generate as high as 10% income flow while allowing the ETF to experience capital appreciation.
  • Systematically purchase ETF put options and sell ETF call options, employing an overlay known as a "Put/Spread Collar" strategy. This type of investment may cap both upside and downside movements of the underlying equity

Investment Process

1. Market Evaluation

PHI principals and technology systems monitor option pricing as well as the market as a whole.

2. Trade Execution

Trades are made using account cash value. Some cash may be sidelined for contingencies.

3. Option Month Ends

Typically the options are held to expiration so the full premium value is realized.

4. Redeploy Capital

Capital is put to work immediately to sell more spreads for the next cycle.

Read more about the PHI systematic risk process

Learn More

What Are Options?

(investopedia.com)

Learn what options are and how they are used

Option Collar Explained

(optionseducation.org)

Learn about the option collar, used in the PHI strategy

Using Options Decreases Portfolio Volatility

(Chicago Board of Options Exchange - cboe.com)

Discover a study showing how the use of options decreases portfolio volatility

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