Option Overlay Strategy

Overview

The Option Overlay Strategy seeks to provide income generation and capital protection on client's existing holdings. The program uses exchange traded options to generate monthly income that can also provide a true hedge on the holdings as desired. PHI works with clients and advisors to determine risk level, income and capital needs. The program is a potential way to generate income, provide protections all while allowing investors to keep their holdings. This program is 100% customized for each client.



Strategy Benefits

Aim to earn or protect income while participating in the performance of existing holdings.

Does not require leverage to achieve results.
Daily liquidity in your existing account.
Potentially earn income at both short- and long-term capital gain rates.
Full transparency for trades, performance, costs and risk.
Customize your risk vs. reward profile according to your objectives.

Customize to your Objectives

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


Conservative

Downside Protection
Narrow trading range generates highest income and can limit movement of the underlying holdings. This program level works well when the clients are willing to forgo some upside potential to eliminate large moves to the downside.

Moderate

Market Neutral
A little wider trading range will experience less income than Conservative. This program level works well when clients are slightly bullish on positions and are willing to forgo some income to allow for greater capital appreciation.

Growth

Bullish Advantage
Wide trading range produces small levels of income but allows much greater capital appreciation. This program level works well when clients are bullish and want to protect the positions from catastrophic moves in the market.



All investment programs aim to trade options with expirations no more than 6 months into the future, though typically focuses on 2-to-4 month durations. 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 seeks to generate monthly income by selling options using the underlying holdings in the client's account as collateral. Additionally, these options are typically hedged by purchasing options that expire 2-to-4 months in the future used to minimize risk of market downturns.

  • Option trades typically last 30-to-120 days to suit the desired levels of liquidity and protection
  • Seeks to generate income to suit the investor's needs while allowing the existing holdings to experience capital appreciation
  • Systematically purchase and sell options, typically intending to cap exposure to both upside and downside market movement.

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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