A hot topic in the investing world recently has been the concept of the ‘short options, long equity’ strategy. Today we take a deep dive into this innovative investment strategy, with insights from Chris, our portfolio manager, who spoke about this in a recent video.
“The key to our fund is a balance between two elements: shorting options and maintaining a long position in equities,” Chris began. “We’ve developed a strategy that seamlessly integrates these two elements to achieve our investment objectives.”
Shorting Options
“Shorting options refers to the act of selling options contracts we don’t own,” Chris explained. “By writing options contracts, we can collect the premium upfront, which forms an important part of our income strategy. We aim to sell options contracts that we predict will expire worthless. This happens when the price of the underlying security doesn’t move in the direction the option holder was betting on.”
Chris mentioned that this isn’t a reckless bet. On the contrary, the strategy is based on thorough research and statistical analysis. “In fact, over 90% of the options we sell expire worthless, which speaks volumes about the efficacy of our strategy.”
Long Equity
Moving on to the second half of the strategy, Chris illuminated what he meant by a ‘long equity’ fund. “This is the buy-and-hold portion of our strategy,” he said. “We invest in stocks that we believe hold promise for the long term. Our aim is to ride the wave of potential appreciation in the stock price over time.”
Balancing Risk and Reward
The true genius of the ‘short options, long equity’ fund lies in its balance. Chris pointed out the complementary nature of these two strategies. “Our short options strategy provides an income stream derived from the premium we collect when selling options. On the other hand, our long equity position allows us to aim for long-term growth in the value of the stocks we hold.”
By carefully aligning these strategies, the fund can balance risk and reward. It generates a steady income while also reaching for long-term growth, a combination many investors find appealing.
As Chris aptly summed up, “It’s all about creating a fund that’s structured to weather market fluctuations and provide investors with a solid investment vehicle that can serve their financial goals.”