High Probability Options Strategy

Income without interest rate risk
ZEGA’s idea of alternative income is to capture the option premium generated by volatility in the stock market. The strategy is called the High Probability Options Strategy – or HiPOS. Our tactics can add income to a portfolio without exposure to rising interest rates. And, we let the client set the dial for capital at risk. The strategy’s returns, non-correlated to both equities and bonds, are driven by your clients’ comfort with risk.

What is it?cropped-ZEGA-FINANCIAL-LOGO-SYMBOL.png

  • HiPOS is an alternative – options based strategy
  • Aggressive version has averaged double digit returns annually since it’s 2010 inception
  • Has had returns with a historically low correlation to US equity or US fixed income
  • Has never had a negative calendar year

Potential Benefits:

A Different Monthly ‘Alternative Income’ Solution

  • Lower volatility than benchmarks
  • Can be used to generate monthly returns
  • Portfolio is highly liquid
  • Sophisticated strategy with the transparency and low fees of an SMA structure
  • Offered in 4 versions based on risk profile: Income, Moderate Growth, Aggressive Growth, and Conservative

Portfolio Fit: 

A Complementary Fit in a Portfolio – Not a Core Holding

  • Aggressive ⇒ for clients looking for a growth allocation
  • Moderate ⇒ can be used along side any equity allocation
  • Income & Conservative ⇒ as a supplement to fixed income

Risks:

Market Decline Represents Most Significant Risk to Strategy

Black Swan Risk:

  • Markets can move suddenly, swiftly, and without notice.
  • The strategy uses options to create implied leverage meaning it controls more shares than it could otherwise purchase with the same amount of capital.
  • In a sharp downward moving market, the loss in the strategy may accelerate quickly because of the implied leverage – it depends on the conditions of the trade cycle.
  • We describe this risk as the “Black Swan” risk that the strategy carries.

HiPOS Aggressive Growth

 as of 6/30/2017MTDQTDYTD1 Year3 Year5 YearITD
HiPOS Net*0.2%2.0%5.9%9.0% 6.0%16.4%21.7%
Benchmark** 1.1%5.4%13.2% 25.9%14.1%16.9%17.3%

HiPOS Moderate Growth

 as of 6/30/2017MTDQTDYTD1 Year3 Year5 YearITD
HiPOS Net*0.2%1.0%3.1% 4.3% 2.5%5.7%
Benchmark**0.6%2.7% 6.4%12.3%7.1% 8.4%

HiPOS Conservative

 as of 6/30/2017MTDQTDYTD1 Year3 Year5 YearITD
HiPOS Net* 0.4%2.0% 5.1% 8.6% 4.2% 6.0%
Benchmark** 0.6% 2.7%6.4% 12.3%7.1%8.0%

High Probability Options Strategy

Note: Returns are expressed in US Dollars net of fees.

ZEGA Financial is a registered investment adviser and investment manager that specializes in derivatives. ZEGA is a separate accounts manager and all returns expressed herein are solely from the separate accounts business within ZEGA.

The High Probability Options Strategy – Aggressive Growth composite includes all institutional, retail, and founder portfolios that deploy out of the money credit spreads across the entire portfolio. This strategy targets out of the money strikes that can typically produce target returns of 1% to 3% per trade. The strategy aims to deliver risk-adjusted returns that are uncorrelated to the broader markets. A rapidly declining market generally negatively affects the strategy’s credit put spreads. The Aggressive Growth version maximizes the amount of buying power available in a portfolio, and therefore takes on the maximum amount of risk. This composite includes all portfolios that were at least 70% dedicated to this strategy.  The benchmark is a custom benchmark of 2 times the return of the CBOE Put Write Index and it is rebalanced at the end of every month. The CBOE Put Write Index is an index that measures the performance of a hypothetical portfolio that sells S&P 500 Index (SPX) put options against collateralized cash reserves held in a money market account.

The High Probability Options Strategy – Moderate Growth composite includes all institutional and retail portfolios that deploy out of the money credit spreads across 40% to 60% of the portfolio along with money market ETF for the remainder. This strategy targets out of the money strikes that can typically produce target returns of 1% to 3% per trade. The strategy aims to deliver risk-adjusted returns that are uncorrelated to the broader markets. A rapidly declining market generally negatively affects the strategy’s credit put spreads. This composite includes all portfolios that were at least 70% dedicated to this strategy.  The benchmark is the CBOE Put Write Index.

The High Probability Options Strategy – Conservative Composite includes all institutional and retail portfolios that deploy deep out of the money credit spreads across the entire portfolio. This strategy targets out of the money strikes that can typically produce target returns of 1% by seeking strikes that are further out-of-the-money than the trades deployed by the other HiPOS strategies. The strategy aims to deliver risk-adjusted returns that are uncorrelated to the broader markets. A rapidly declining market generally negatively affects the strategy’s credit put spreads. This composite includes all portfolios that were at least 70% dedicated to this strategy.   The benchmark is the CBOE Put Write Index.

ZEGA Financial claims compliance with the Global Investment Performance Standards (GIPS). To receive a full list of composite descriptions of ZEGA Financial and/or a presentation that complies with the GIPS standards, contact Jay Pestrichelli at 1-800-380-9342, ext 101 or jay.pestrichelli@zegafinancial.com.

All investments involve the risk of potential investment losses as well as the potential for investment gains. Prior performance is no guarantee of future results and there can be no assurance, and clients should not assume, that future performance of any of the model portfolios will be comparable to past performance.

These results should not be viewed as indicative of the advisor’s skill. The prior performance figures indicated herein represent portfolio performance for only a short time period, and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance presented should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. The actual results for the comparable periods would also have varied from the presented results based upon the timing of contributions and withdrawals from individual client accounts. The performance figures contained herein should be viewed in the context of the various risk/return profiles and asset allocation methodologies utilized by the asset allocation strategists in developing their model portfolios, and should be accompanied or preceded by the model.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment’s volatility.

 Tear Sheet 

 Presentation

 White Paper

HiPOS Aggressive Growth

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HiPOS Moderate Growth

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HiPOS Conservative

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CONTACT US

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