TLT Optic
Income | Treasury-Focused Index | Reduced Volatility
Historical Performance
*Inception is February 1, 2023
Note: Above data is not annualized. See the accompanying disclosures below for important information on composite construction, performance calculation methodology, and the differences between TLT Optic and the indices.
Risk Measures
Note: See Important Disclosures below for a definition of terms.
Growth of a $1,000 Portfolio
Note: TLT Optic performance is net of fees; it is not possible to invest in an index and advisory fees and trading costs do not apply to indices. See Important Disclosures below.
TLT Optic Quarterly Income per $100 Invested (Net)
*Totals depicted include option premiums and dividend income.
Note: Income for each quarter is calculated by dividing the net income by the total value of the composite at the beginning of the month. No amount of income is guaranteed, and some periods may provide little or no income.
Option Strategy
There are several ways to approach option trading. Optic utilizes 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 TLT Optic strategy seeks to generate income through the sale of covered calls, provide limited capital appreciation, and experience lower volatility than the 20+ Year US Treasury Bond Index.
Strategy Documents
How it Works
The strategy begins with an ownership position in the iShares 20+ Year Treasury Bond ETF (TLT). Proprietary modeling software and in-house analysis then determine opportune option windows to sell covered calls against TLT. These premiums are in addition to the dividend payouts from the TLT ETF and can help to reduce the overall volatility of owning TLT over time.
TLT Optic begins with an ownership position in the iShares 20+ Year Treasury Bond ETF (TLT)
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 TLT Optic strategy involves acquiring a stake in TLT (iShares 20+ Year Treasury Bond ETF) and using skilled analysis and proprietary methodology to tactically sell covered calls against the ETF to generate income.
The BXTW measures the performance of a hypothetical, rules-based buy-write strategy on the TLT (iShares 20+ Year Treasury Bond ETF) (the “Index”), using near-term (weekly) at-the-money TLT Index options. TLT Optic utilizes a more tactical approach based on active technical analysis to determine which covered call options to sell against its stake in TLT.
Returns are expected to approach those of the TLT ETF although the ETF more likely to outperform the strategy in appreciating markets. Our strategy has a very limited track record though we believe we are more likely to approximately or outperform (meaning we lose less than the index) the underlying index during down markets than up.
TLT Optic is typically used for investors who are seeking more income from their bond allocation. In addition, option overlay strategies like TLT Optic, can reduce the overall volatility of owning a long-only position in TLT ETF over time.
The TLT 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 completely without risk. Since nearly all of the strategy’s funds are invested in TLT (ISHARES 20+ YEAR TREASURY BOND ETF), declines in the value of TLT may significantly negatively impact the value of TLT Optic.
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.Investors will also pay transaction costs on options trades. 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 Div 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 TLT Optic strategy may vary depending on market conditions and other factors. The manager utilizes proprietary modeling software and in-house 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. TLT Optic will generate dividends from the TLT 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 TLT 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 Div 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 Optic Asset Management’s “TLT Optic” Strategy. Optic Asset Management is a division of Watts Gwilliam & Company, LLC , a registered investment advisor. TLT Optic is a covered call writing strategy applied to client portfolios holding a position in the iShares 20+ Year Treasury Bond ETF.
The performance shown reflects actual client portfolios assigned to TLT Optic during the full periods shown. To be included, portfolios must be managed on a fully discretionary basis, and with an asset value of $50,000 or greater. Portfolios must be managed using TLT Optic for a full month before inclusion in performance results. The performance shown is net of fees and transaction costs. We apply the actual average weighted fee paid by the portfolios included in TLT 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 TLT 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.
Past performance is not a guarantee of future results. No investment strategy can ensure a profit or ensure the investor will avoid loss. Since TLT Optic’s inception in June 2022, equity markets have exhibited significant volatility and uncertainty, including the effects of rising interest rates. While Optic Asset Management intends the TLT 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 Optic Asset Management being able to implement TLT Optic.
Index Descriptions
iShares 20+ Year Treasury Bond ETF (TLT): The iShares 20+ Year Treasury Bond ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years.
Index comparisons are provided for informational purposes and index performance is not intended to represent the performance of any Optic Asset Management portfolio. 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. Likewise, the TLT Optic strategy differs substantially from the indexes in terms of equity holdings and investment tactics.
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.
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 the NASDAQ 100 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.