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What is an Option Overlay?

An Option Overlay is an investment solution delivered on top of an existing portfolio. Overlays are designed around an existing portfolio creating a customized investment experience for each and every overlay. Overlays are a proven risk mitigation vehicle that complements your existing asset allocations by helping to achieve targeted risk outcomes.

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Benefits of an Option Overlay

Non disruptive to existing asset allocations Overlays sit on top of existing asset allocations and require no change to existing portfolio construction.
Overlays sit on top of existing asset allocations and require no change to existing portfolio construction.
Reduce risk with minimal tax consequences Overlays allow for portfolio hedging without the sizable tax bill that can sometimes accrue from rebalancing.
Overlays allow for portfolio hedging without the sizable tax bill that can somtimes accrus from rebalancing.
Add incremental returns to portfolios Overlays are daily liquid and transparent, so proceeds are immediately available for reinvestment.
Overlays are daily liquid and transparent, so proceeds are immediately available for reinvestment.
Customized to individual client portfolios Overlay protection can increase or decrease based on client's evolving tolerance for risk in their portfolios.
Overlay protection can increase or decrease based on client's evolving tolerance for risk in their portfolios.

Overlays Help You Avoid Painful Mathematics of Recouping Losses

Whether saving for retirement or living off their portfolios, huge losses can permanently impair your clients’ return experiences, as the gains and time required to recover from losses are daunting.

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This chart is constructed solely to illustrate the hypothetical investment gains required to recoup investment losses.

Overlays Provide Asymmetric Upside and Downside Capture

We believe the ability of a money manager to create asymmetrical return participation in rising and falling markets is not a key, but the key determinant of value ultimately created for the client. All the virtues of successful investment management – from robust risk-adjusted performance statistics to attractive longterm returns – radiate from asymmetry.

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This chart is intended to show hypothetical risk and return metrics for an investor who uses options overlays to affect his/her overall market performance capture ratios.

Overlays Help You Win by Not Losing

We believe this foundational objective turns the conventional doctrine of investing on its head: structuring portfolios to be protective during adverse market periods is far more important than “beating the market/benchmark” during positive periods. Effective risk management applied with consistency trumps periodic return heroics.

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This chart demonstrates the superior return characteristics of a portfolio capturing 90% of the upside and 60% of the downside, as well one capturing 80% of the upside and 50% of the downside of the S&P 500 Index over a 25 year period. Contrast that to simply investing in the S&P itself, and the difference is staggering.

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