Index Income Overlay

Index Income

The investment objective of the Index Income SMA seeks positive monthly cashflow from option premiums. The strategy employs a long-term, time-decay, premium-capture put credit spread on the S&P 500 or similarly situated exchange-traded funds (ETFs).

The Index Income Overlay strategy seeks to manufacture cashflow in exchange for the investor accepting some additional volatility in their existing portfolio. The investment goal is for this incremental cash flow income to become a realized gain, either upon expiration of the spread, or sometime in the future if the spread positions need to be “rolled” forward. Option overlay products are not appropriate for all investors. Realized gains and losses can be inconsistent. These are long-term strategies and may not produce capital gains over the short-term.

Portfolio Managers

Tom Kaiser, CFA, CPA
Nathan Harshman
Dave Gilreath, CFP®

Inception Date

07/01/2016
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Index Income SMA Strategy Highlights

Seeks cash-flow in exchange for additional market volatility in existing portfolio.

Targets additional income alongside dividends and interest.

The purchase of a long put as part of the spread limits downside risk.

Underlying portfolio can be managed by us or the client.

Index Income Portfolio Construction

1st | Universe

S&P 500 ETF or Index options.

2nd | Evaluate

Consider current market conditions and expected volatility measures to determine proper entry points for put credit spreads.

3rd | Execute

Sell a short out-of-the-money put option typically 3-5% below current levels of the S&P 500, while simultaneously purchasing a long out-of-the-money put option, typically 15% below the short put option strike price at the same expiration, which creates a put credit spread.