Income Generation through Index Options

The goal of the strategy is to provide an investment vehicle which experiences consistent positive gains regardless of market movement or direction. The manager seeks to achieve this goal through the use of S&P 500 index options with the intent of retaining option premiums and allowing those options to expire worthless on a monthly basis.

Investment Methodology

PHI employs an alternative investment strategy that aims to generate income on a range bound broad-based index through the time decay of option premiums by selling front month out-of-the-money put option spreads.

  • Entry level into the options market is based on an internally developed and refined process that uses several technical and statistical indicators.
  • Market volatility, option Greeks, and statistical probability are used to determine which option entry strikes may have a high statistical chance of success.
  • Short-term expirations give the manager the opportunity to actively adjust the strategy's position in volatile markets.
  • Internally developed tools are used to determine the purchase of additional put options on the S&P 500 to hedge the entire strategy against large market swings.

Strategy Benefits

Potentially earn income with limited market correlation
Income may be both short- and long-term capital gain rates
Short-term option expirations aim to limit risk of positions relative to the market
Does not require leverage to achieve results

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

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(Chicago Board of Options Exchange -

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