SPY Optic
Income | Broad Market Exposure | Capital Appreciation | Reduced Volatility
Historical Performance
*Inception is August 2009
Note: See the accompanying disclosures below for important information on composite construction, performance calculation methodology, and the differences between SPY Optic and the indices. SPY Optic and Benchmark YTD returns are not annualized. All other returns are presented on an annualized basis.
Growth of a $1,000 Portfolio
SPY Optic performance is net of fees and trading costs. It is not possible to invest in an index, and advisory costs and trading costs do not apply to indices. See Important Disclosures below.
SPY Optic Performance vs. S&P 500 in Down Months
SPY Optic has outperformed the S&P 500 index by an average of 58 basis points in 91% of down months.
Note: See Important Disclosures below.
SPY Optic Risk/Return Comparison (Since Inception)
Option Strategy
There are several ways to approach option trading. Optic utilizes advanced technical analysis to determine optimal times to sell in and out of call positions. It also identifies the ideal call to be selling depending on various circumstances. We actively manage these option positions with the goal of delivering the many advantages of covered call selling while still seeking to capture much of the upside appreciation of the underlying holdings.
Strategy Objectives
The SPY Optic strategy seeks to generate income through the sale of covered calls, provide limited capital appreciation, and experience lower volatility than the S&P 500 as a whole.
Strategy Documents
How it Works
The strategy begins with an ownership position in the SPDR S&P 500 ETF Trust (SPY). Managers then use proprietary modeling and analysis to determine opportune option windows to sell covered calls against SPY. The premiums collected for the options are income to the investor. These premiums also help to reduce the overall volatility of owning the S&P 500 over time.
SPY Optic begins with an ownership position in the SPDR S&P 500 ETF Trust (SPY)
Proprietary modeling software and analysis determine opportune options windows
Covered call options are sold on a tactical basis and include ongoing active management of the option positions
Frequently Asked Questions
The SPY Optic strategy involves acquiring a stake in SPY (SPDR S&P 500 ETF) and using skilled analysis and proprietary methodology to tactically sell covered calls against the ETF to generate income.
The BXM measures the performance of a hypothetical, rules-based buy-write strategy on the S&P 500 Index (the “Index”), using near-term (monthly) at-the-money S&P 500 Index options. SPY Optic utilizes a tactical approach based on active technical analysis to determine which covered call options to sell against its stake in SPY. SPY Optic’s performance has historically often compared quite favorably to that of the BXM. Please see the disclosures on this webpage and elsewhere on this site for more details, including important disclosures about the differences between SPY Optic and BXM, and the limitations of historical performance data when evaluating investment strategies.
Returns are expected to approach those of the S&P 500 Index, although the Index is more likely to outperform the strategy in appreciating markets. Historical results have shown that the strategy often outperforms the Index during down markets. Please see the most current fact sheet for performance and important disclosures and please also review the important disclosures on this webpage and elsewhere on this site.
Since the strategy sells covered calls against a holding of SPY, it may be a fit for investors who are looking to add income from option premiums and dividends while also hedging downside risk on a broad representation of the US equities market.
The SPY Optic strategy utilizes proprietary software and in-house analysis to sell call options during opportune windows. Such covered call strategies can help smooth out returns during volatile market periods, but no investment strategy is without risk. Since nearly all of the strategy’s funds are invested in SPY (SPDR S&P 500 ETF), declines in the value of SPY may significantly negatively impact the value of SPY Optic. As such, investors should consider all of their investment in SPY Optic at risk..
Please see the historical performance data provided above.
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.
The minimum investment amount required to participate in the SPY Optic strategy may vary but is generally not less than $100,000. Investors should consult with their advisor for more information.
The frequency with which trades are made in the SPY Optic strategy may vary depending on market conditions and other factors. The manager utilizes proprietary modeling software and expert analysis to determine opportune option-selling windows and to select options that are expected to provide the best investor return. It isn’t uncommon to see at least one option trade per week. As noted above, transaction costs can negatively affect return, especially as trading volume increases.
Investors should be aware that selling covered calls may result in taxable events (including the potential of both short- and long-term capital gains/losses), and that the tax implications of investing in the strategy may vary depending on the investor’s individual circumstances. Investors should consult with a tax professional for more information about the potential impact on their own tax situation. SPY Optic includes dividends generated by the underlying ETF in addition to short-term capital gains and losses from the regular option trades.
Regular performance reports on the models are available on www.optic-am.com. Also, clients will also receive individual performance reports directly from the manager in addition to regular statements from the custodians.
To invest in SPY Optic, a separate account will need to be established at one of the many custodians that we work with. In addition, we will need to get the account approved for option trading. We provide a seamless onboarding process that can often be executed through electronic signatures once we receive all of the necessary information from a new client. Please contact us for more information about the onboarding process.
Investments in SPY Optic are liquid and may be redeemed at any time. Redemption processing times vary by custodian, but funds should be available within a few days in accordance with market hours and your advisor’s standard procedures.
Important Disclosures and Definitions
This information reflects the performance of the Watts Gwilliam & Company, LLC’s SPY Optic Strategy (“SPY Optic,” which was previously known as the Income Producing Options Model or IPOM Strategy) during the periods shown. This is a covered call writing strategy applied to client portfolios holding the SPDR S&P 500 ETF Trust (“SPY”), which is an exchange-traded fund that seeks to track the performance of the S&P 500 Index. The S&P500 TR and BXM have been compared to SPY Optic since SPY Optic’s inception date of August 1, 2009. Both S&P 500 TR and BMX have longer histories.
SPY Optic has outperformed the S&P 500 index by an average (mean) of 58 basis points, of net fees, in 91% of the months the S&P 500 index was down during the period. This represents a total of 56 months. Our outperfomance (meaning we were down less than S&P 500, not that we were not down) ranging from a low of 4 basis points to a high of 406 basis points, with a median of 35 basis points.
Performance shown reflects actual client portfolios assigned to SPY Optic during the full periods shown. To be included, portfolios must be managed on a fully discretionary basis, and with an asset value of $150,000 or greater. Portfolios must be managed using SPY Optic for a full quarter before inclusion in performance results. Performance shown is net of fees and transaction costs. We apply the actual average weighted fee paid by the portfolios included in SPY Optic to the results. Historical results include only those advisory fees charged by Watts Gwilliam & Company, LLC . The average weighted fee varies over time but is approximately 80 basis points. This is less than the firm’s maximum fee of 1.25%, but similar to fees paid by the majority of clients, including those whose portfolios make up SPY Optic. An increase in advisory fees will reduce performance; higher fees can have a meaningful negative impact on performance over time. Option transaction costs can be significant, and vary by the custodian or broker used. The actual impact of these costs experienced by our portfolios is reflected in the performance shown.
The SPY Optic Strategy currently represents about 1% of the firm’s overall assets. The core strategy, and related trades, however, are implemented for other portfolios that don’t meet the criteria for inclusion in this strategy but that do hold securities highly correlated with the S&P 500. This means that we execute the same trades, at the same time, for a number of portfolios not included in the SPY Optic Strategy and allocate trades at a single average price across the firm’s portfolios. Given the liquidity of SPY and options related to SPY, we don’t anticipate any trading conflicts between portfolios included in the SPY Optic Strategy and those not included. Similarly, we believe the strategy can continue to be implemented effectively with a significantly larger future asset base. Performance of client accounts not included in the SPY Optic Strategy varies widely from the performance shown here. This is often due to individual requirements, such as cash flow needs and legacy positions.
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. Investors using covered call strategies should be aware of tax implications as profits/losses are treated as capital gains. Tax treatment varies based on factors like holding period, dividends, and assignment. Seek professional tax advice for personalized guidance on navigating tax complexities and ensuring compliance with current IRS regulations.
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.
Index Descriptions
BXM Index: The CBOE S&P 500 BuyWrite IndexSM (“BXM”) is a benchmark index designed to track the performance a hypothetical buy-write strategy on the S&P 500 Index®. BXM is a total return index rebalanced monthly. Dividends paid on the component stocks and dollar value of option premium deemed received from the sold call options are functionally re-invested in the covered portfolio.
SP& 500 Total Return Index (“S&P 500 TR”): Widely regarded as the benchmark gauge of the U.S. equities market, this index includes a representative sample of 500 large-cap companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it also serves as a proxy for the total market. The total return calculation provides investors with a price plus gross cash dividend return. Gross cash dividends are applied on the ex-date of the dividend. Results reflect the reinvestment of dividends and capital gains.
Index comparisons are provided for informational purposes and index performance is not intended to represent the performance of anyWatts Gwilliam & Company, LLC. There are substantial differences between indices and client portfolios, including that indices are unmanaged and are not subject to advisory fees or transaction costs, including the often-material costs associated with option trades. It is not possible to invest directly in an index.
Definitions
Standard deviation: Standard deviation is a statistical measurement used to indicate relative volatility of an investment or strategy. The greater the standard deviation of securities, the greater the variance between each price and the average (mean). Generally, a more volatile stock has a higher standard deviation.
Sharpe ratio: This compares an investment’s return with its risk. The ratio’s numerator is the difference over time between realized, or expected, returns and the stated benchmark. The denominator is the standard deviation of returns over the same time period.
Beta Coefficient: The Beta Coefficient is a measure of the volatility of a fund relative to the overall market.
Upside/downside capture ratios: These measure an investment strategy’s performance in up or down markets relative to an index. For upside capture, values over 1.0 indicate the strategy outperformed the benchmark during periods of positive returns for the benchmark. For downside capture, values of less than 1.0 indicate the strategy lost less than its benchmark during periods of negative returns for the benchmark.
Alpha: Comparison of how the strategy performed vs. the benchmark, after adjusting for risk. Positive percentages indicate outperformance, while negative numbers indicate underperformance.