Strategies in Today’s Market: Strategic and Opportunistic Options
The rare combination of equity markets near all-time highs and elevated volatility has created an unusually favorable environment for certain options based strategies. This certainly is an unexpected rebound from the COVID-19 pandemic. In our recent webinar, panelists Maisie Hughes and Dave Donnelly spoke on specific strategies for taking advantage of where we are today, while managing risks and taxes in highflying tech stocks.
The following topics were discussed:
- Hedging concentrated stock positions
- Estate Planning with Opportunistic Yield Enhancement
- Three timely options-based strategies for today’s environment: Defense, Income and Offense
Maisie Hughes has been working with family offices for about 8 years and is now responsible for business development in New England, the Mid-Atlantic and Pacific Northwestern US at SpiderRock Advisors. She opened the conversation by discussing the challenges that come along with taxes when investing: “Smarter portfolios really begin with a focus on risk management, and then option overlays are the most effective and tax efficient way of solving for risk management. Brian mentions that yield options can definitely add a yield component to a portfolio in a tax efficient manner. They can also solve these sticky challenges in wealth management that have historically been hit very hard and are hard to solve.”
Dave Donnelly is a partner of the firm and works with advisors at family offices, looking at their unique challenges as it pertains to their liquid portfolio and coming up with customized solutions by using equity derivatives.
A Look Inside the Webinar
Why Does Strategy Work Well in Today’s Environment?
- Anything in the hedging realm is accelerating, in terms of interest. Donnelly discussed how they hear this a lot from their clients who own some of these high flying tech names. They want to know how to take some of the risk off the table without selling the stock and paying taxes.
- Volatility remains very elevated. Thinking back to March of 2020, volatility hit all-time highs, and has remained elevated compared to what it’s been historically.
Single Stock Hedging
Dave discussed a few strategies he’s seeing that work well in today’s environment. He’s had a handful of clients that have made a bunch of money in equities over the past 12 months and are looking to take some risks off the table, without selling their stocks.
“The most well-known options strategy is covered call writing, which is essentially selling the potential upside in the stock you own to someone else. Over 30 years, these strategies tend to return about the same as equities, but it’s done on a third or less volatility. Another strategy is collar payoff, which is similar to covered call writing, but instead the client will buy downside protection so even if the stock goes to zero, the most they will lose, from a portfolio value perspective, is 10% or 11% of whatever the footstrike is.”
3 Strategies for Today’s Environment:
- Defense Strategy
- Income Strategy
- Offensive Strategy
Estate Planning with Opportunistic Yield Enhancement
At SpiderRock, they use an “opportunistic yield enhancement strategy to reduce portfolio equity exposure, while potentially generating additional income. This solves multiple problems:
- It helps the client reduce their equity exposure without incurring capital gains taxes;
- It allows the client to potentially generate a new income stream off the portfolio; and
- By using income from the options or losses created from options, the client can liquidate a percentage of their portfolio and completely offset their capital gains tax bill.
Opportunistic Yield Enhancement toggles between selling individual name options (AAPL options on AAPL stock) and index options. This flexibility allows clients to sell volatility when it looks attractive in individual names and sell index volatility when individual name volatility looks unattractive.”
If you are interested in learning more or have any questions, please do not hesitate to contact us.
Among the myriad of data points available, there’s two that stand out as key indicators of profitability: Internal Rate of Return (IRR) and Cash-on-Cash Return.
In the world of alternative investments, few sectors have garnered as much respect for their stability and long-term appreciation potential as commercial real estate.
A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.
Interested in learning more about Excelsior's investment opportunities?
Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.