Since 1974, this strategy has been designed to maximize risk‐adjusted returns by combining the long‐term appreciation potential of stocks with lower volatility and income generation through covered call option writing.
This strategy is designed for investors who desire low volatility and consider themselves to be “conservative” equity investors, wanting an extra layer of downside protection and understanding returns will be muted in strong market environments. We combine covered calls and protective puts to help hedge against our underlying positions.
When we manage one of our Index Active BuyWrites, we attempt to deliver attractive risk-adjusted returns by investing in a passive index ETF and managing an active options-overlay to help generate income and lower overall volatility. At times, a portion of the call premiums generated may be used to purchase a limited amount of protective puts as a way to further reduce volatility.
The aim of the strategy, which has been a specialty of Connors since our founding in 1969, is to provide returns greater than those of large company stocks. We define a “small company” as any publicly traded company with an equity market capitalization between $250 million and $4 billion upon initial purchase.
This unique approach towards “small cap” attempts to deliver attractive risk-adjusted returns by investing in an active portfolio of 33-37 carefully selected individual U.S. small company stocks, along with an allocation to a passive ETF representing the Russell 2000® Index. The strategy will systematically write/sell covered calls against the ETF and, on occasion, purchase protective puts to help lower volatility and generate modest income.
The Connors Tailored Options Service can work with concentrated holdings and manage an Options-Overlay strategy to complement the positions, potentially helping to protect, diversify and/or generate additional income.