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Connors Small Companies Active BuyWrite


Small Companies with an Active Options-Overlay

  • Actively manage 33-37 individual U.S. small company stocks with a passive index ETF.
  • Systematically sell call options against the ETF sleeve.
  • Generate income with call premiums to help reduce volatility.
  • Tactically utilize protective puts for unforeseen drawdowns.

The foundation of this approach is a structured 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. In investing in individual stocks, our emphasis is on fundamental quality, strong profitability, low debt levels and proven management. As a way to reduce risk and generate income, we write covered call options against the small company ETF position. While this strategy reduces upside potential in very strong markets, it brings in immediate cash and typically reduces portfolio volatility. At times, the strategy may use some of the premiums generated by option writing to finance periodic put protection to cushion the portfolio during market drawdowns.


Active Options-Overlay

The management team, after carefully selecting the underlying holdings, will then strategically write covered call options against the portfolio’s ETF sleeve, taking into account current market and small-cap developments. Active portfolio decisions are being made daily such as:

  • Evaluating various strikes.
  • Allocating amount of “active” underlying versus “passive” underlying.
  • Determining optimal time to write.
  • Evaluating optimal option price.
  • Tactically deciding when to add put protection.

Portfolio Management

Our search begins with in-house database screening which narrows our field of focus. The results are utilized to guide our bottom-up, company level research that combines research conferences, meetings with management, third-party research and company filings. These efforts result in a proprietary return analysis and report.

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