Strathbridge Selective Overwrite ("SSO")
The Strathbridge Selective Overwriting process has been developed over many years through various market cycles. The process is continuously evaluated and refined to incorporate an expanding universe of data, the latest option strategies, and market developments, in order to provide our portfolio managers with the best proprietary indicators to implement our call-writing strategy for your portfolio. The objectives of the SSO process are to:
- improve the risk-adjusted return
- generate cash flow, and
- improve the total return for our clients
There are four primary steps to the SSO process:
- Research: The research process begins by gathering at least ten years of data to incorporate as many market conditions as possible. We consider the security's price history, volume, as well as option data including: implied and historical volatilities, skew, open interest, and volume. Fundamental data is also gathered to permit valuation analysis and peer comparisons.
- Analysis: A rigorous analysis of individual securities determines their volatility personality: over time, across a variety of market conditions and, relative to their peers. Our process incorporates quantitative and technical analysis including trend identification, rate of change, relative strength and mean reversion enhanced by our proprietary algorithms to identify reliable price patterns. Patterns and signals generated from our quantitative process are carefully reviewed to ensure they are logical in the context of current market conditions prior to executing a trade.
- Execution: In determining whether to overwrite a particular security, the portfolio managers consider numerous factors including timing of earnings releases, dividend dates, expected volatility and other fundamental information. Once a decision has been made to overwrite a security the portfolio manager must determine the appropriate term and strike price of the option and consider the staggering of expiry dates in the context of the portfolio. Often it is necessary to write a bespoke option in the over-the-counter (OTC) market to achieve the desired outcome for the portfolio.
- Monitoring: Once executed, positions are continuously monitored until the position is closed or harvested. Our primary objectives regarding open positions are to protect gains and limit losses. If the anticipated profit level has been achieved, the option is closed to realize the gain and to eliminate the potential for the position to revert into a loss. As markets are dynamic, new information or exogenous events have the potential to invalidate the analysis or derail the strategy. In these situations, it is best to close the position and limit further losses rather than hope the situation reverses.