Optic Single Stock
Unlock the Potential of Your Holdings
Strategy Highlights
This “unfunded” options strategy offers a powerful way to unlock potential income from an investor’s large, concentrated stock positions without selling any of that stock. It is “unfunded” because it doesn’t require the investor to invest any additional cash and instead is overlaid across the investor’s current position(s). The strategy sells covered calls against the investor’s concentrated position to generate premium income and potentially reduce the volatility of the holding.
Benefits
- Does not require any changes to the investor’s existing portfolio.
- Diversifies an investor’s income stream strategy by providing premium income.
- Hedges downside exposure through additional income.
- Can be customized to fit an investor’s unique needs and preferences.
Features
- Actively managed using Optic’s proprietary methodology for selecting the quantity and duration of calls that are written, as developed over 25 years of options trading experience.
- Offers a more agile and responsive approach to the market than traditional, rules-based covered call strategies.
- Allows investors to continue to receive dividends and maintain voting rights.
- Historically, the strategy has generated strong returns while minimizing risk.
Is this program right for you?
You have a concentrated or large stock position that meets a minimum requirement of the lesser of 10,000 shares or $500,000 market value. Some exceptions apply.
You’re looking to generate income off the concentrated stock position.
Hypothetical Example
The factors described in this hypothetical case are similar to situations Optic Asset Management encounters with clients, but the illustration does not, however, represent the experience or views of any actual client. There is no guarantee that investors will achieve positive results or meet the goals they have set in connection with Optic strategies.
John has worked as a manager for XYZ Corp for 18 years and, in the process, has acquired nearly 35,000 shares of the company’s stock. His goal is to continue holding the stock until it reaches a more favorable sell price. John has become frustrated watching the position rise and fall with the market and wants to evaluate alternatives to potentially enhance the return on the idle stock position.
Using the Optic program, John can generate an income stream from the option premiums for option positions written against his stock position, in addition to collecting dividends, if applicable.
After a discussion with his investment advisor and Optic Asset Management, John decided to engage in the Optic strategy on his XYZ shares. He receives a proposal with an estimated income projection along with a good understanding of how much upside he can still capture on XYZ stock. Over time, John continues to see how Optic can enhance his otherwise idle stock position. Some years, he makes more money than other years. He notices that in years where XYZ is flat or down he tends to make more income from his Optic strategy. At times, he may decide to sell some XYZ for diversification or other needs and he simply notifies his advisor of his desire to do this, and Optic Asset Management works that into their call trading. There are some periods of time that XYZ appreciates dramatically, and John might lose some income from the Optic strategy during those periods of time. Still, his overall account value is up substantially during those times so he can live with that. John may decide to sell all or some of his XYZ during these time periods and he notices that he doesn’t lose Optic cashflow when he decides to sell.
Every quarter, John has received a detailed performance summary showing how much income he has accumulated while in the strategy. The reports also show John how his XYZ stock would’ve performed without using Optic so he can use that as a comparison. The reporting also shows John how much volatility has been reduced from simply just owning the stock.
Frequently Asked Questions
This strategy sells calls against an investor’s existing holdings of a given stock with the aim to generate premium income and potentially reduce the volatility of the portfolio.
Without changing an investor’s underlying holding, overlaying an options strategy aims to generate premium income and potentially reduce the volatility of the position.
Many of our clients have a very low-cost basis in their stock positions, so we understand the need to avoid having those shares called away, which can create a large tax bill.
The Optic program uses listed options to execute its strategy. Listed options are American-style options, which means that it is possible for shares to be exercised prior to the maturity of the option. This rarely happens. However, if you prefer to retain your shares, Optic Asset Management will buy stock in the open marketplace to deliver if your options are exercised.
Yes. In fact, many of our clients use the Optic program to hedge the cost of margin interest.
Yes. However, doing this may require closing option positions at a loss. There is a chance that this loss could exceed the upfront income that was earned at the onset of the strategy.
Yes. Selling covered call options are approved for most retirement accounts, including IRA accounts.
Yes. However, the following terms must be met:
- You must have options that are vested, in-the-money, and expire in no less than one year.
- You must understand the added risks of investing in naked options.
- You must collateralize the program’s short-option position with sufficient assets.
- Optic Asset Management may request duplicate quarterly statements detailing the status of your employee stock options.
Optic Asset Management charges a management fee of 0.50% to 1.0%, withdrawn quarterly. Investors are advised to speak with their investment advisor for more details, along with any additional fees they may charge. Options trading is generally more expensive than equity trading and costs vary among brokers and custodians. Transaction costs can significantly reduce return.
Reports will continue to be available through the custodian and/or financial advisor. Depending on how the account is set up, clients may also receive regular performance reports from the manager.
Disclosures
The above example is hypothetical and should not be construed to be financial advice.
Investors should consult with their financial advisor and review all related documentation before proceeding with any of the investments discussed on this website.
Past performance is not a guarantee of future results. No investment strategy can ensure a profit or ensure the investor will avoid loss. The time periods shown were characterized by periods of significant volatility, as well as a sustained bull market from 2009 through 2020. Both factors are likely to have a positive impact on SPY Optic’s performance. Since 2020, equity markets have continued to exhibit significant volatility and uncertainty, including the effects of the COVID-19 pandemic and rapid increases in interest rates. While Watts Gwilliam & Company, LLC intends the SPY Optic Strategy to add value to investment portfolios, especially in flat or down markets, portfolios might underperform in rising markets. The performance presentation shown does not reflect the effect of taxes, which may be a significant consideration for taxable accounts.
Options trading involves risks. Prior to executing option trades, investors will receive from the custodian a copy of Characteristics and Risks of Standardized Options, also known as the Options Disclosure Document, which can be found at www.theocc.com. Clients must be approved for options trading by the custodian prior to Watts Gwilliam & Company, LLC being able to implement SPY Optic.