Sheaff Brock Index Income Overlay Portfolio Strategy

This Sheaff Brock Investment Advisors Index Income Overlay strategy is designed to seek additional income on top of a current investment. This strategy is for investors who are comfortable with taking additional stock market risk (S&P 500) with an opportunity for added cash flow, net of fees. This is intended to be a long-term, time-premium capture strategy, and is not a trading strategy. Cash flow and realized gains, if any, may be significantly different from each other month-to-month and year-to-year. Clients who are bearish on equities, or who do not have the patience to wait through a correction until the S&P 500 recovers to within 3% of the level when they entered the strategy, should not participate.

Index Income Overlay Strategy Overview


The Sheaff Brock Investment Advisors Index Income Overlay strategy is designed to seek additional income that is incremental to the underlying investment. The strategy has the potential to offer a defined risk and return composition to an investor’s existing portfolio. The key concept of the strategy is to construct an option portfolio that is positioned to take advantage of the difference that typically exists between the implied volatility and actual volatility in the market place.

The Overlay strategy is not a trading strategy; it is intended to be a long-term, time-option, premium-capture strategy of employing a non-leveraged put credit spread position on the S&P 500. The investment objective of the Index Income Overlay strategy is twofold—generate positive monthly cash flow from option premium payments on the SPDR S&P 500 ETF/indices while simultaneously hedging significant downside risk by employing a defensive position. The strategy follows a disciplined methodology of selling “writing” puts on the S&P 500 ETF or index (intended to create the monthly cash flow) and buying a protective put on the overall positon that is intended to hedge large drawdowns of the S&P 500.


The Index Income Overlay strategy seeks positive cash flow from creating a position of a non-leveraged credit spread on the S&P 500. A non-leveraged credit spread involves the selling of put options with the purchase of a put option with the same expiration. The strategy seeks to create current income from the sale of the put option (receiving the premium) and offset the risk by buying a put option and protect the investor from severe pull backs in the market. The Index Income Overlay is a low trading strategy with a target of one spread per month. Its goal is to allow put options to expire in order to maximize return.

• Sheaff Brock sells “writes” an out-of-the-money put option targeting three different expiration dates—30 day, 60 day, and 90 day expiration.

• The strategy seeks to target the short put option position at 3% out-of-the-money.

• The long put position has a targeted strike that is 15% below the short option strike price.

• One spread is written for each of the three months.

– If the front month expires out-of-the-money, a gain is created and a new spread is written three months into the future, with a strike price 3% lower than the current market.

– If the front month expires in-the-money, the short put is rolled out (ideally at a lower price) in the future for a credit, and a new long (protective) put is purchased at a target of 15% below the rolled strike.

• Underlying collateral assets can include, but are not limited to bonds, mutual funds, concentrated stock positions, managed accounts, and other marginable securities.

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